diff --git a/packages/@headlessui-react/CHANGELOG.md b/packages/@headlessui-react/CHANGELOG.md
index 562f9ebe8a..0d55afda70 100644
--- a/packages/@headlessui-react/CHANGELOG.md
+++ b/packages/@headlessui-react/CHANGELOG.md
@@ -14,6 +14,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - Fix crash in `Combobox` component when in `virtual` mode when options are empty ([#3356](https://github.com/tailwindlabs/headlessui/pull/3356))
 - Fix hanging tests when using `anchor` prop ([#3357](https://github.com/tailwindlabs/headlessui/pull/3357))
 - Fix `transition` and `focus` prop combination for `PopoverPanel` component ([#3361](https://github.com/tailwindlabs/headlessui/pull/3361))
+- Fix outside click in nested portalled `Popover` components ([#3362](https://github.com/tailwindlabs/headlessui/pull/3362))
 
 ## [2.1.1] - 2024-06-26
 
diff --git a/packages/@headlessui-react/src/components/dialog/dialog.tsx b/packages/@headlessui-react/src/components/dialog/dialog.tsx
index 49fd061f4d..ff7fceb3c5 100644
--- a/packages/@headlessui-react/src/components/dialog/dialog.tsx
+++ b/packages/@headlessui-react/src/components/dialog/dialog.tsx
@@ -25,12 +25,15 @@ import { useIsTouchDevice } from '../../hooks/use-is-touch-device'
 import { useOnDisappear } from '../../hooks/use-on-disappear'
 import { useOutsideClick } from '../../hooks/use-outside-click'
 import { useOwnerDocument } from '../../hooks/use-owner'
-import { useRootContainers } from '../../hooks/use-root-containers'
+import {
+  MainTreeProvider,
+  useMainTreeNode,
+  useRootContainers,
+} from '../../hooks/use-root-containers'
 import { useScrollLock } from '../../hooks/use-scroll-lock'
 import { useServerHandoffComplete } from '../../hooks/use-server-handoff-complete'
 import { useSyncRefs } from '../../hooks/use-sync-refs'
 import { CloseProvider } from '../../internal/close-provider'
-import { HoistFormFields } from '../../internal/form-fields'
 import { ResetOpenClosedProvider, State, useOpenClosed } from '../../internal/open-closed'
 import { ForcePortalRoot } from '../../internal/portal-force-root'
 import type { Props } from '../../types'
@@ -180,11 +183,9 @@ let InternalDialog = forwardRefWithAs(function InternalDialog<
     },
   }
 
-  let {
-    resolveContainers: resolveRootContainers,
-    mainTreeNodeRef,
-    MainTreeNode,
-  } = useRootContainers({
+  let mainTreeNode = useMainTreeNode()
+  let { resolveContainers: resolveRootContainers } = useRootContainers({
+    mainTreeNode,
     portals,
     defaultContainers: [defaultContainer],
   })
@@ -207,8 +208,7 @@ let InternalDialog = forwardRefWithAs(function InternalDialog<
     ]),
     disallowed: useEvent(() => [
       // Disallow the "main" tree root node
-      mainTreeNodeRef.current?.closest<HTMLElement>('body > *:not(#headlessui-portal-root)') ??
-        null,
+      mainTreeNode?.closest<HTMLElement>('body > *:not(#headlessui-portal-root)') ?? null,
     ]),
   })
 
@@ -320,9 +320,6 @@ let InternalDialog = forwardRefWithAs(function InternalDialog<
           </DialogContext.Provider>
         </Portal>
       </ForcePortalRoot>
-      <HoistFormFields>
-        <MainTreeNode />
-      </HoistFormFields>
     </ResetOpenClosedProvider>
   )
 })
@@ -395,13 +392,19 @@ function DialogFn<TTag extends ElementType = typeof DEFAULT_DIALOG_TAG>(
 
   if ((open !== undefined || transition) && !rest.static) {
     return (
-      <Transition show={open} transition={transition} unmount={rest.unmount}>
-        <InternalDialog ref={ref} {...rest} />
-      </Transition>
+      <MainTreeProvider>
+        <Transition show={open} transition={transition} unmount={rest.unmount}>
+          <InternalDialog ref={ref} {...rest} />
+        </Transition>
+      </MainTreeProvider>
     )
   }
 
-  return <InternalDialog ref={ref} open={open} {...rest} />
+  return (
+    <MainTreeProvider>
+      <InternalDialog ref={ref} open={open} {...rest} />
+    </MainTreeProvider>
+  )
 }
 
 // ---
diff --git a/packages/@headlessui-react/src/components/popover/popover.tsx b/packages/@headlessui-react/src/components/popover/popover.tsx
index 082f4a82b6..3f0642f4c5 100644
--- a/packages/@headlessui-react/src/components/popover/popover.tsx
+++ b/packages/@headlessui-react/src/components/popover/popover.tsx
@@ -32,7 +32,11 @@ import { useOnDisappear } from '../../hooks/use-on-disappear'
 import { useOutsideClick } from '../../hooks/use-outside-click'
 import { useOwnerDocument } from '../../hooks/use-owner'
 import { useResolveButtonType } from '../../hooks/use-resolve-button-type'
-import { useMainTreeNode, useRootContainers } from '../../hooks/use-root-containers'
+import {
+  MainTreeProvider,
+  useMainTreeNode,
+  useRootContainers,
+} from '../../hooks/use-root-containers'
 import { useScrollLock } from '../../hooks/use-scroll-lock'
 import { optionalRef, useSyncRefs } from '../../hooks/use-sync-refs'
 import { Direction as TabDirection, useTabDirection } from '../../hooks/use-tab-direction'
@@ -195,7 +199,6 @@ let PopoverGroupContext = createContext<{
   unregisterPopover(registerBag: PopoverRegisterBag): void
   isFocusWithinPopoverGroup(): boolean
   closeOthers(buttonId: string): void
-  mainTreeNodeRef: MutableRefObject<HTMLElement | null>
 } | null>(null)
 PopoverGroupContext.displayName = 'PopoverGroupContext'
 
@@ -343,8 +346,9 @@ function PopoverFn<TTag extends ElementType = typeof DEFAULT_POPOVER_TAG>(
   useEffect(() => registerPopover?.(registerBag), [registerPopover, registerBag])
 
   let [portals, PortalWrapper] = useNestedPortals()
+  let mainTreeNode = useMainTreeNode(button)
   let root = useRootContainers({
-    mainTreeNodeRef: groupContext?.mainTreeNodeRef,
+    mainTreeNode,
     portals,
     defaultContainers: [button, panel],
   })
@@ -416,33 +420,34 @@ function PopoverFn<TTag extends ElementType = typeof DEFAULT_POPOVER_TAG>(
   let ourProps = { ref: popoverRef }
 
   return (
-    <FloatingProvider>
-      <PopoverPanelContext.Provider value={null}>
-        <PopoverContext.Provider value={reducerBag}>
-          <PopoverAPIContext.Provider value={api}>
-            <CloseProvider value={close}>
-              <OpenClosedProvider
-                value={match(popoverState, {
-                  [PopoverStates.Open]: State.Open,
-                  [PopoverStates.Closed]: State.Closed,
-                })}
-              >
-                <PortalWrapper>
-                  {render({
-                    ourProps,
-                    theirProps,
-                    slot,
-                    defaultTag: DEFAULT_POPOVER_TAG,
-                    name: 'Popover',
+    <MainTreeProvider node={mainTreeNode}>
+      <FloatingProvider>
+        <PopoverPanelContext.Provider value={null}>
+          <PopoverContext.Provider value={reducerBag}>
+            <PopoverAPIContext.Provider value={api}>
+              <CloseProvider value={close}>
+                <OpenClosedProvider
+                  value={match(popoverState, {
+                    [PopoverStates.Open]: State.Open,
+                    [PopoverStates.Closed]: State.Closed,
                   })}
-                  <root.MainTreeNode />
-                </PortalWrapper>
-              </OpenClosedProvider>
-            </CloseProvider>
-          </PopoverAPIContext.Provider>
-        </PopoverContext.Provider>
-      </PopoverPanelContext.Provider>
-    </FloatingProvider>
+                >
+                  <PortalWrapper>
+                    {render({
+                      ourProps,
+                      theirProps,
+                      slot,
+                      defaultTag: DEFAULT_POPOVER_TAG,
+                      name: 'Popover',
+                    })}
+                  </PortalWrapper>
+                </OpenClosedProvider>
+              </CloseProvider>
+            </PopoverAPIContext.Provider>
+          </PopoverContext.Provider>
+        </PopoverPanelContext.Provider>
+      </FloatingProvider>
+    </MainTreeProvider>
   )
 }
 
@@ -1110,7 +1115,6 @@ function GroupFn<TTag extends ElementType = typeof DEFAULT_GROUP_TAG>(
   let internalGroupRef = useRef<HTMLElement | null>(null)
   let groupRef = useSyncRefs(internalGroupRef, ref)
   let [popovers, setPopovers] = useState<PopoverRegisterBag[]>([])
-  let root = useMainTreeNode()
 
   let unregisterPopover = useEvent((registerBag: PopoverRegisterBag) => {
     setPopovers((existing) => {
@@ -1157,15 +1161,8 @@ function GroupFn<TTag extends ElementType = typeof DEFAULT_GROUP_TAG>(
       unregisterPopover: unregisterPopover,
       isFocusWithinPopoverGroup,
       closeOthers,
-      mainTreeNodeRef: root.mainTreeNodeRef,
     }),
-    [
-      registerPopover,
-      unregisterPopover,
-      isFocusWithinPopoverGroup,
-      closeOthers,
-      root.mainTreeNodeRef,
-    ]
+    [registerPopover, unregisterPopover, isFocusWithinPopoverGroup, closeOthers]
   )
 
   let slot = useMemo(() => ({}) satisfies GroupRenderPropArg, [])
@@ -1174,16 +1171,17 @@ function GroupFn<TTag extends ElementType = typeof DEFAULT_GROUP_TAG>(
   let ourProps = { ref: groupRef }
 
   return (
-    <PopoverGroupContext.Provider value={contextBag}>
-      {render({
-        ourProps,
-        theirProps,
-        slot,
-        defaultTag: DEFAULT_GROUP_TAG,
-        name: 'Popover.Group',
-      })}
-      <root.MainTreeNode />
-    </PopoverGroupContext.Provider>
+    <MainTreeProvider>
+      <PopoverGroupContext.Provider value={contextBag}>
+        {render({
+          ourProps,
+          theirProps,
+          slot,
+          defaultTag: DEFAULT_GROUP_TAG,
+          name: 'Popover.Group',
+        })}
+      </PopoverGroupContext.Provider>
+    </MainTreeProvider>
   )
 }
 
diff --git a/packages/@headlessui-react/src/components/tabs/tabs.tsx b/packages/@headlessui-react/src/components/tabs/tabs.tsx
index eb7d9b36d0..e33f309b17 100644
--- a/packages/@headlessui-react/src/components/tabs/tabs.tsx
+++ b/packages/@headlessui-react/src/components/tabs/tabs.tsx
@@ -649,7 +649,7 @@ function PanelFn<TTag extends ElementType = typeof DEFAULT_PANEL_TAG>(
   )
 
   if (!selected && (theirProps.unmount ?? true) && !(theirProps.static ?? false)) {
-    return <Hidden as="span" aria-hidden="true" {...ourProps} />
+    return <Hidden aria-hidden="true" {...ourProps} />
   }
 
   return render({
diff --git a/packages/@headlessui-react/src/hooks/use-root-containers.tsx b/packages/@headlessui-react/src/hooks/use-root-containers.tsx
index 318c55298c..cf4fded4d4 100644
--- a/packages/@headlessui-react/src/hooks/use-root-containers.tsx
+++ b/packages/@headlessui-react/src/hooks/use-root-containers.tsx
@@ -1,20 +1,21 @@
-import React, { useMemo, useRef, type MutableRefObject } from 'react'
+import React, { createContext, useContext, useState, type MutableRefObject } from 'react'
 import { Hidden, HiddenFeatures } from '../internal/hidden'
+import { getOwnerDocument } from '../utils/owner'
 import { useEvent } from './use-event'
 import { useOwnerDocument } from './use-owner'
 
 export function useRootContainers({
   defaultContainers = [],
   portals,
-  mainTreeNodeRef: _mainTreeNodeRef,
+
+  // Reference to a node in the "main" tree, not in the portalled Dialog tree.
+  mainTreeNode,
 }: {
   defaultContainers?: (HTMLElement | null | MutableRefObject<HTMLElement | null>)[]
   portals?: MutableRefObject<HTMLElement[]>
-  mainTreeNodeRef?: MutableRefObject<HTMLElement | null>
+  mainTreeNode?: HTMLElement | null
 } = {}) {
-  // Reference to a node in the "main" tree, not in the portalled Dialog tree.
-  let mainTreeNodeRef = useRef<HTMLElement | null>(_mainTreeNodeRef?.current ?? null)
-  let ownerDocument = useOwnerDocument(mainTreeNodeRef)
+  let ownerDocument = useOwnerDocument(mainTreeNode)
 
   let resolveContainers = useEvent(() => {
     let containers: HTMLElement[] = []
@@ -42,8 +43,10 @@ export function useRootContainers({
       if (container === document.head) continue // Skip `<head>`
       if (!(container instanceof HTMLElement)) continue // Skip non-HTMLElements
       if (container.id === 'headlessui-portal-root') continue // Skip the Headless UI portal root
-      if (container.contains(mainTreeNodeRef.current)) continue // Skip if it is the main app
-      if (container.contains((mainTreeNodeRef.current?.getRootNode() as ShadowRoot)?.host)) continue // Skip if it is the main app (and the component is inside a shadow root)
+      if (mainTreeNode) {
+        if (container.contains(mainTreeNode)) continue // Skip if it is the main app
+        if (container.contains((mainTreeNode?.getRootNode() as ShadowRoot)?.host)) continue // Skip if it is the main app (and the component is inside a shadow root)
+      }
       if (containers.some((defaultContainer) => container.contains(defaultContainer))) continue // Skip if the current container is part of a container we've already seen (e.g.: default container / portal)
 
       containers.push(container)
@@ -57,25 +60,89 @@ export function useRootContainers({
     contains: useEvent((element: HTMLElement) =>
       resolveContainers().some((container) => container.contains(element))
     ),
-    mainTreeNodeRef,
-    MainTreeNode: useMemo(() => {
-      return function MainTreeNode() {
-        if (_mainTreeNodeRef != null) return null
-        return <Hidden features={HiddenFeatures.Hidden} ref={mainTreeNodeRef} />
-      }
-    }, [mainTreeNodeRef, _mainTreeNodeRef]),
   }
 }
 
-export function useMainTreeNode() {
-  let mainTreeNodeRef = useRef<HTMLElement | null>(null)
+let MainTreeContext = createContext<HTMLElement | null>(null)
 
-  return {
-    mainTreeNodeRef,
-    MainTreeNode: useMemo(() => {
-      return function MainTreeNode() {
-        return <Hidden features={HiddenFeatures.Hidden} ref={mainTreeNodeRef} />
-      }
-    }, [mainTreeNodeRef]),
-  }
+/**
+ * A provider for the main tree node.
+ *
+ * When a component is rendered in a `Portal`, it is no longer part of the main
+ * tree. This provider helps to find the main tree node and pass it along to the
+ * components that need it.
+ *
+ * The main tree node is used for features such as outside click behavior, where
+ * we allow clicks in 3rd party containers, but not in the parent of the "main
+ * tree".
+ *
+ * In case of a `Popover`, we can use the `PopoverButton` as a marker in the
+ * "main tree", the `PopoverPanel` can't be used because it could be rendered in
+ * a `Portal` (e.g. when using the `anchor` props).
+ *
+ * However, we can't use the `PopoverButton` when it's nested inside of another
+ * `Popover`'s `PopoverPanel` component if the parent `PopoverPanel` is
+ * rendered in a `Portal`.
+ *
+ * This is where the `MainTreeProvider` comes in. It will find the "main tree"
+ * node and pass it on. The top-level `PopoverButton` will be used as a marker
+ * in the "main tree" and nested `Popover` will use this button as well.
+ */
+export function MainTreeProvider({
+  children,
+  node,
+}: {
+  children: React.ReactNode
+  node?: HTMLElement | null
+}) {
+  let [mainTreeNode, setMainTreeNode] = useState<HTMLElement | null>(null)
+
+  // 1. Prefer the main tree node from context
+  // 2. Prefer the provided node
+  // 3. Create a new node at this point, and find the main tree node
+  let resolvedMainTreeNode = useMainTreeNode(node ?? mainTreeNode)
+
+  return (
+    <MainTreeContext.Provider value={resolvedMainTreeNode}>
+      {children}
+
+      {/**
+       * If no main tree node is found at this point, then we briefly render an
+       * element to find the main tree node and pass it along.
+       */}
+      {resolvedMainTreeNode === null && (
+        <Hidden
+          features={HiddenFeatures.Hidden}
+          ref={(el) => {
+            if (!el) return
+
+            // We will only render this when no `mainTreeNode` is found. This
+            // means that if we render this element and use it as the
+            // `mainTreeNode` that we will be unmounting it later.
+            //
+            // However, we can resolve the actual root container of the main
+            // tree node and use that instead.
+            for (let container of getOwnerDocument(el)?.querySelectorAll('html > *, body > *') ??
+              []) {
+              if (container === document.body) continue // Skip `<body>`
+              if (container === document.head) continue // Skip `<head>`
+              if (!(container instanceof HTMLElement)) continue // Skip non-HTMLElements
+              if (container?.contains(el)) {
+                setMainTreeNode(container)
+                break
+              }
+            }
+          }}
+        />
+      )}
+    </MainTreeContext.Provider>
+  )
+}
+
+/**
+ * Get the main tree node from context or fallback to the optionally provided node.
+ */
+export function useMainTreeNode(fallbackMainTreeNode: HTMLElement | null = null) {
+  // Prefer the main tree node from context, but fallback to the provided node.
+  return useContext(MainTreeContext) ?? fallbackMainTreeNode
 }
diff --git a/packages/@headlessui-react/src/internal/hidden.tsx b/packages/@headlessui-react/src/internal/hidden.tsx
index 65589c3f1b..04b13b26bf 100644
--- a/packages/@headlessui-react/src/internal/hidden.tsx
+++ b/packages/@headlessui-react/src/internal/hidden.tsx
@@ -2,7 +2,7 @@ import type { ElementType, Ref } from 'react'
 import type { Props } from '../types'
 import { forwardRefWithAs, render, type HasDisplayName, type RefProp } from '../utils/render'
 
-let DEFAULT_VISUALLY_HIDDEN_TAG = 'div' as const
+let DEFAULT_VISUALLY_HIDDEN_TAG = 'span' as const
 
 export enum HiddenFeatures {
   // The default, no features.