diff --git a/.changeset/hot-roses-smell.md b/.changeset/hot-roses-smell.md
new file mode 100644
index 000000000..6d0bf9c8a
--- /dev/null
+++ b/.changeset/hot-roses-smell.md
@@ -0,0 +1,5 @@
+---
+'@lion/overlays': patch
+---
+
+Added a fix for focus not being restored to the root element when only a focusout event happens, without a subsequent focusin event. Added a fix to use getDeepActiveElement util instead of document.activeElement which fixes focus trap in elements with shadowRoots that contain focusable elements.
diff --git a/packages/overlays/src/utils/contain-focus.js b/packages/overlays/src/utils/contain-focus.js
index e670cb24c..f100d1bf7 100644
--- a/packages/overlays/src/utils/contain-focus.js
+++ b/packages/overlays/src/utils/contain-focus.js
@@ -8,6 +8,7 @@
 
 import { getDeepActiveElement } from './get-deep-active-element.js';
 import { getFocusableElements } from './get-focusable-elements.js';
+import { deepContains } from './deep-contains.js';
 import { keyCodes } from './key-codes.js';
 
 /**
@@ -111,34 +112,62 @@ export function containFocus(rootElement) {
   }
 
   /**
+   * @param {Object} [opts]
+   * @param {boolean} [opts.resetToRoot]
    * @desc When we simulate a modal dialog, we need to restore the focus to the first or last
    * element of the rootElement
    */
-  function setFocusInRootElement() {
-    window.removeEventListener('focusin', setFocusInRootElement);
-    if (rootElement.contains(document.activeElement)) {
+  function setFocusInRootElement({ resetToRoot = false } = {}) {
+    if (deepContains(rootElement, /** @type {HTMLElement} */ (getDeepActiveElement()))) {
       return;
     }
-    const nextActive = focusableElements[isForwardTabInWindow() ? 0 : focusableElements.length - 1];
+
+    let nextActive;
+    if (resetToRoot) {
+      nextActive = rootElement;
+    } else {
+      nextActive = focusableElements[isForwardTabInWindow() ? 0 : focusableElements.length - 1];
+    }
+
     if (nextActive) {
       nextActive.focus();
     }
   }
 
-  function addFocusinListener() {
-    window.addEventListener('focusin', setFocusInRootElement);
+  function handleFocusin() {
+    window.removeEventListener('focusin', handleFocusin);
+    setFocusInRootElement();
+  }
+
+  function handleFocusout() {
+    /**
+     * There is a moment in time between focusout and focusin (when focus shifts)
+     * where the activeElement is reset to body first. So we use an async task to check
+     * a little bit later for activeElement, so we don't get a false positive.
+     *
+     * We used to check for focusin event for this, however,
+     * it can happen that focusout happens, but focusin never does, e.g. click outside but no focusable
+     * element is found to focus. If this happens, we should take the focus back to the rootElement.
+     */
+    setTimeout(() => {
+      if (!deepContains(rootElement, /** @type {HTMLElement} */ (getDeepActiveElement()))) {
+        setFocusInRootElement({ resetToRoot: true });
+      }
+    });
+
+    window.addEventListener('focusin', handleFocusin);
   }
 
   function disconnect() {
     window.removeEventListener('keydown', handleKeydown);
-    window.removeEventListener('focusin', setFocusInRootElement);
-    window.removeEventListener('focusout', addFocusinListener);
+    window.removeEventListener('focusin', handleFocusin);
+    window.removeEventListener('focusout', handleFocusout);
     rootElement.removeChild(tabDetectionElement);
     rootElement.style.removeProperty('outline');
   }
 
   window.addEventListener('keydown', handleKeydown);
-  window.addEventListener('focusout', addFocusinListener);
+  window.addEventListener('focusout', handleFocusout);
   createHelpersDetectingTabDirection();
 
   return { disconnect };
diff --git a/packages/overlays/src/utils/deep-contains.js b/packages/overlays/src/utils/deep-contains.js
new file mode 100644
index 000000000..b5730ab68
--- /dev/null
+++ b/packages/overlays/src/utils/deep-contains.js
@@ -0,0 +1,40 @@
+/**
+ * Whether first element contains the second element, also goes through shadow roots
+ * @param {HTMLElement|ShadowRoot} el
+ * @param {HTMLElement} targetEl
+ * @returns {boolean}
+ */
+export function deepContains(el, targetEl) {
+  let containsTarget = el.contains(targetEl);
+  if (containsTarget) {
+    return true;
+  }
+
+  /** @param {HTMLElement} elem */
+  function checkChildren(elem) {
+    for (let i = 0; i < elem.children.length; i += 1) {
+      const child = /** @type {HTMLElement}  */ (elem.children[i]);
+      if (child.shadowRoot) {
+        containsTarget = deepContains(child.shadowRoot, targetEl);
+        if (containsTarget) {
+          break;
+        }
+      }
+      if (child.children.length > 0) {
+        checkChildren(child);
+      }
+    }
+  }
+
+  // If element is not shadowRoot itself
+  if (el instanceof HTMLElement) {
+    if (el.shadowRoot) {
+      containsTarget = deepContains(el.shadowRoot, targetEl);
+      if (containsTarget) {
+        return true;
+      }
+    }
+    checkChildren(el);
+  }
+  return containsTarget;
+}
diff --git a/packages/overlays/test/utils-tests/contain-focus.test.js b/packages/overlays/test/utils-tests/contain-focus.test.js
index 7cab868ad..a45843acd 100644
--- a/packages/overlays/test/utils-tests/contain-focus.test.js
+++ b/packages/overlays/test/utils-tests/contain-focus.test.js
@@ -148,6 +148,20 @@ describe('containFocus()', () => {
     disconnect();
   });
 
+  it.skip('restores focus to root element if focusout event happens where activeElement goes outside', async () => {
+    await fixture(lightDomTemplate);
+    const root = /** @type {HTMLElement} */ (document.getElementById('rootElement'));
+    const focusableElements = getFocusableElements(root);
+    const { disconnect } = containFocus(root);
+
+    focusableElements[2].focus();
+    expect(getDeepActiveElement()).to.equal(focusableElements[2]);
+    document.body.click(); // this does not cause focusout event :( doesn't seem possible to mock
+    expect(getDeepActiveElement()).to.equal(root);
+
+    disconnect();
+  });
+
   describe('Tabbing into window', () => {
     it('restores focus within root element', async () => {
       await fixture(lightDomTemplate);
diff --git a/packages/overlays/test/utils-tests/deep-contains.test.js b/packages/overlays/test/utils-tests/deep-contains.test.js
new file mode 100644
index 000000000..60b9382a2
--- /dev/null
+++ b/packages/overlays/test/utils-tests/deep-contains.test.js
@@ -0,0 +1,66 @@
+import { expect, fixture } from '@open-wc/testing';
+import { html } from '@lion/core';
+
+import { deepContains } from '../../src/utils/deep-contains.js';
+
+describe('deepContains()', () => {
+  it('returns true if element contains a target element with a shadow boundary in between', async () => {
+    const shadowElement = /** @type {HTMLElement} */ (await fixture('<div id="shadow"></div>'));
+    const shadowRoot = shadowElement.attachShadow({ mode: 'open' });
+    shadowRoot.innerHTML = `
+      <button id="el-1">Button</button>
+      <a id="el-2" href="#foo">Href</a>
+      <input id="el-3">
+    `;
+    const shadowElementChild = /** @type {HTMLElement} */ (shadowRoot.querySelector('#el-1'));
+    const element = /** @type {HTMLElement} */ (await fixture(html`
+      <div id="light">
+        ${shadowElement}
+        <button id="light-el-1"></button>
+      </div>
+    `));
+    const lightEl = /** @type {HTMLElement} */ (element.querySelector('#light-el-1'));
+
+    expect(deepContains(element, shadowElement)).to.be.true;
+    expect(deepContains(element, shadowElementChild)).to.be.true;
+    expect(deepContains(element, lightEl)).to.be.true;
+    expect(deepContains(shadowElement, shadowElement)).to.be.true;
+    expect(deepContains(shadowElement, shadowElementChild)).to.be.true;
+    expect(deepContains(shadowRoot, shadowElementChild)).to.be.true;
+  });
+
+  it('returns true if element contains a target element with a shadow boundary in between, for multiple shadowroots', async () => {
+    const shadowElement = /** @type {HTMLElement} */ (await fixture('<div id="shadow"></div>'));
+    const shadowRoot = shadowElement.attachShadow({ mode: 'open' });
+    shadowRoot.innerHTML = `
+      <button id="el-1">Button</button>
+      <a id="el-2" href="#foo">Href</a>
+      <input id="el-3">
+    `;
+
+    const shadowElement2 = /** @type {HTMLElement} */ (await fixture('<div id="shadow2"></div>'));
+    const shadowRoot2 = shadowElement2.attachShadow({ mode: 'open' });
+    shadowRoot2.innerHTML = `
+      <button id="el-1">Button</button>
+      <a id="el-2" href="#foo">Href</a>
+      <input id="el-3">
+    `;
+
+    const shadowElementChild = /** @type {HTMLElement} */ (shadowRoot.querySelector('#el-2'));
+    const shadowElementChild2 = /** @type {HTMLElement} */ (shadowRoot2.querySelector('#el-2'));
+    const element = /** @type {HTMLElement} */ (await fixture(html`
+      <div id="light">
+        ${shadowElement} ${shadowElement2}
+        <button id="light-el-1"></button>
+      </div>
+    `));
+
+    expect(deepContains(element, shadowElementChild)).to.be.true;
+    expect(deepContains(shadowElement, shadowElementChild)).to.be.true;
+    expect(deepContains(shadowRoot, shadowElementChild)).to.be.true;
+
+    expect(deepContains(element, shadowElementChild2)).to.be.true;
+    expect(deepContains(shadowElement2, shadowElementChild2)).to.be.true;
+    expect(deepContains(shadowRoot2, shadowElementChild2)).to.be.true;
+  });
+});