diff --git a/docs/pages/resources/changelog.md b/docs/pages/resources/changelog.md
index 19ac462cb7..e1f0c530b2 100644
--- a/docs/pages/resources/changelog.md
+++ b/docs/pages/resources/changelog.md
@@ -17,6 +17,7 @@ New versions of Shoelace are released as-needed and generally occur when a criti
 - Added `--isolatedModules` and `--verbatimModuleSyntax` to `tsconfig.json`. For anyone directly importing event types, they no longer provide a default export due to these options being enabled. For people using the `events/event.js` file directly, there is no change.
 - Added support for submenus in `<sl-menu-item>` [#1410]
 - Added the `--submenu-offset` custom property to `<sl-menu-item>` [#1410]
+- Fixed an issue with focus trapping elements like `<sl-dialog>` when wrapped by other elements not checking the assigned elements of `<slot>`s. [#1537]
 - Fixed type issues with the `ref` attribute in React Wrappers. [#1526]
 - Fixed a regression that caused `<sl-radio-button>` to render incorrectly with gaps [#1523]
 - Improved expand/collapse behavior of `<sl-tree>` to work more like users expect [#1521]
diff --git a/src/internal/active-elements.ts b/src/internal/active-elements.ts
new file mode 100644
index 0000000000..e108ca47c1
--- /dev/null
+++ b/src/internal/active-elements.ts
@@ -0,0 +1,22 @@
+/**
+ * Use a generator so we can iterate and possibly break early.
+ * @example
+ *   // to operate like a regular array. This kinda nullifies generator benefits, but worth knowing if you need the whole array.
+ *   const allActiveElements = [...activeElements()]
+ *
+ *   // Early return
+ *   for (const activeElement of activeElements()) {
+ *     if (<cond>) {
+ *       break; // Break the loop, dont need to iterate over the whole array or store an array in memory!
+ *     }
+ *   }
+ */
+export function* activeElements(activeElement: Element | null = document.activeElement): Generator<Element> {
+  if (activeElement === null || activeElement === undefined) return;
+
+  yield activeElement;
+
+  if ('shadowRoot' in activeElement && activeElement.shadowRoot && activeElement.shadowRoot.mode !== 'closed') {
+    yield* activeElements(activeElement.shadowRoot.activeElement);
+  }
+}
diff --git a/src/internal/modal.ts b/src/internal/modal.ts
index 86bc866c03..680a0e97d8 100644
--- a/src/internal/modal.ts
+++ b/src/internal/modal.ts
@@ -1,3 +1,4 @@
+import { activeElements } from './active-elements.js';
 import { getTabbableElements } from './tabbable.js';
 
 let activeModals: HTMLElement[] = [];
@@ -55,6 +56,20 @@ export default class Modal {
     return getTabbableElements(this.element).findIndex(el => el === this.currentFocus);
   }
 
+  /**
+   * Checks if the `startElement` is already focused. This is important if the modal already
+   * has an existing focus prior to the first tab key.
+   */
+  startElementAlreadyFocused(startElement: HTMLElement) {
+    for (const activeElement of activeElements()) {
+      if (startElement === activeElement) {
+        return true;
+      }
+    }
+
+    return false;
+  }
+
   handleKeyDown = (event: KeyboardEvent) => {
     if (event.key !== 'Tab') return;
 
@@ -68,7 +83,10 @@ export default class Modal {
 
     const tabbableElements = getTabbableElements(this.element);
     const start = tabbableElements[0];
-    let focusIndex = this.currentFocusIndex;
+
+    // Sometimes we programmatically focus the first element in a modal.
+    // Lets make sure the start element isn't already focused.
+    let focusIndex = this.startElementAlreadyFocused(start) ? 0 : this.currentFocusIndex;
 
     if (focusIndex === -1) {
       this.currentFocus = start;
diff --git a/src/internal/tabbable.test.ts b/src/internal/tabbable.test.ts
new file mode 100644
index 0000000000..7807a39eeb
--- /dev/null
+++ b/src/internal/tabbable.test.ts
@@ -0,0 +1,147 @@
+import { elementUpdated, expect, fixture } from '@open-wc/testing';
+
+import '../../dist/shoelace.js';
+import { activeElements } from './active-elements.js';
+import { html } from 'lit';
+import { sendKeys } from '@web/test-runner-commands';
+
+async function holdShiftKey(callback: () => Promise<void>) {
+  await sendKeys({ down: 'Shift' });
+  await callback();
+  await sendKeys({ up: 'Shift' });
+}
+
+const tabKey =
+  navigator.userAgent.includes('Safari') && !navigator.userAgent.includes('HeadlessChrome') ? 'Alt+Tab' : 'Tab';
+
+// Simple helper to turn the activeElements generator into an array
+function activeElementsArray() {
+  return [...activeElements()];
+}
+
+function getDeepestActiveElement() {
+  return activeElementsArray().pop();
+}
+
+window.customElements.define(
+  'tab-test-1',
+  class extends HTMLElement {
+    constructor() {
+      super();
+      this.attachShadow({ mode: 'open' });
+    }
+    connectedCallback() {
+      this.shadowRoot!.innerHTML = `
+      <sl-drawer>
+        <slot name="label" slot="label"></slot>
+
+        <slot></slot>
+
+        <slot name="footer" slot="footer"></slot>
+      </sl-drawer>
+    `;
+    }
+  }
+);
+
+it('Should allow tabbing to slotted elements', async () => {
+  const el = await fixture(html`
+    <tab-test-1>
+      <div slot="label">
+        <sl-button id="focus-1">Focus 1</sl-button>
+      </div>
+
+      <div>
+        <!-- Focus 2 lives as the close-button from <sl-drawer> -->
+        <sl-button id="focus-3">Focus 3</sl-button>
+        <button id="focus-4">Focus 4</sl-button>
+        <input id="focus-5" value="Focus 5">
+      </div>
+
+      <div slot="footer">
+        <div id="focus-6" tabindex="0">Focus 6</div>
+        <button tabindex="-1">No Focus</button>
+      </div>
+    </tab-test-1>
+  `);
+
+  const drawer = el.shadowRoot?.querySelector('sl-drawer');
+
+  if (drawer === null || drawer === undefined) throw Error('Could not find drawer inside of the test element');
+
+  await drawer.show();
+
+  await elementUpdated(drawer);
+
+  const focusZero = drawer.shadowRoot?.querySelector("[role='dialog']");
+
+  if (focusZero === null || focusZero === undefined) throw Error('Could not find dialog panel inside <sl-drawer>');
+
+  const focusOne = el.querySelector('#focus-1');
+  const focusTwo = drawer.shadowRoot?.querySelector("[part~='close-button']");
+
+  if (focusTwo === null || focusTwo === undefined) throw Error('Could not find close button inside <sl-drawer>');
+
+  const focusThree = el.querySelector('#focus-3');
+  const focusFour = el.querySelector('#focus-4');
+  const focusFive = el.querySelector('#focus-5');
+  const focusSix = el.querySelector('#focus-6');
+
+  // When we open drawer, we should be focused on the panel to start.
+  expect(getDeepestActiveElement()).to.equal(focusZero);
+
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusOne);
+
+  // When we hit the <Tab> key we should go to the "close button" on the drawer
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusTwo);
+
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusThree);
+
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusFour);
+
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusFive);
+
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusSix);
+
+  // Now we should loop back to #panel
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusZero);
+
+  // Now we should loop back to #panel
+  await sendKeys({ press: tabKey });
+  expect(activeElementsArray()).to.include(focusOne);
+
+  // Let's reset and try from starting point 0 and go backwards.
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusZero);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusSix);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusFive);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusFour);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusThree);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusTwo);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusOne);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusZero);
+
+  await holdShiftKey(async () => await sendKeys({ press: tabKey }));
+  expect(activeElementsArray()).to.include(focusSix);
+});
diff --git a/src/internal/tabbable.ts b/src/internal/tabbable.ts
index 4925e2ab7f..74ea767430 100644
--- a/src/internal/tabbable.ts
+++ b/src/internal/tabbable.ts
@@ -70,10 +70,36 @@ export function getTabbableBoundary(root: HTMLElement | ShadowRoot) {
 
 export function getTabbableElements(root: HTMLElement | ShadowRoot) {
   const allElements: HTMLElement[] = [];
+  const tabbableElements: HTMLElement[] = [];
 
   function walk(el: HTMLElement | ShadowRoot) {
     if (el instanceof Element) {
-      allElements.push(el);
+      // if the element has "inert" we can just no-op it.
+      if (el.hasAttribute('inert')) {
+        return;
+      }
+
+      if (!allElements.includes(el)) {
+        allElements.push(el);
+      }
+
+      if (!tabbableElements.includes(el) && isTabbable(el)) {
+        tabbableElements.push(el);
+      }
+
+      /**
+       * This looks funky. Basically a slot's children will always be picked up *if* they're within the `root` element.
+       * However, there is an edge case when, if the `root` is wrapped by another shadow DOM, it won't grab the children.
+       * This fixes that fun edge case.
+       */
+      const slotChildrenOutsideRootElement = (slotElement: HTMLSlotElement) =>
+        (slotElement.getRootNode({ composed: true }) as ShadowRoot | null)?.host !== root;
+
+      if (el instanceof HTMLSlotElement && slotChildrenOutsideRootElement(el)) {
+        el.assignedElements({ flatten: true }).forEach((assignedEl: HTMLElement) => {
+          walk(assignedEl);
+        });
+      }
 
       if (el.shadowRoot !== null && el.shadowRoot.mode === 'open') {
         walk(el.shadowRoot);
@@ -86,10 +112,14 @@ export function getTabbableElements(root: HTMLElement | ShadowRoot) {
   // Collect all elements including the root
   walk(root);
 
-  return allElements.filter(isTabbable).sort((a, b) => {
-    // Make sure we sort by tabindex.
-    const aTabindex = Number(a.getAttribute('tabindex')) || 0;
-    const bTabindex = Number(b.getAttribute('tabindex')) || 0;
-    return bTabindex - aTabindex;
-  });
+  return tabbableElements;
+
+  // Is this worth having? Most sorts will always add increased overhead. And positive tabindexes shouldn't really be used.
+  // So is it worth being right? Or fast?
+  // return allElements.filter(isTabbable).sort((a, b) => {
+  //   // Make sure we sort by tabindex.
+  //   const aTabindex = Number(a.getAttribute('tabindex')) || 0;
+  //   const bTabindex = Number(b.getAttribute('tabindex')) || 0;
+  //   return bTabindex - aTabindex;
+  // });
 }