diff --git a/packages/components/CHANGELOG.md b/packages/components/CHANGELOG.md
index 2f211094a4a37..c903989f45628 100644
--- a/packages/components/CHANGELOG.md
+++ b/packages/components/CHANGELOG.md
@@ -6,6 +6,10 @@
 
 -   `ColorPalette`, `BorderControl`: Don't hyphenate hex value in `aria-label` ([#52932](https://github.com/WordPress/gutenberg/pull/52932)).
 
+### Bug Fix
+
+-   `Modal`: Fix loss of focus when clicking outside ([#52653](https://github.com/WordPress/gutenberg/pull/52653)).
+
 ## 25.4.0 (2023-07-20)
 
 ### Enhancements
diff --git a/packages/components/src/modal/index.tsx b/packages/components/src/modal/index.tsx
index d9c7b602b8392..7667a815561a8 100644
--- a/packages/components/src/modal/index.tsx
+++ b/packages/components/src/modal/index.tsx
@@ -170,6 +170,15 @@ function UnforwardedModal(
 		[ hasScrolledContent ]
 	);
 
+	const onOverlayPress: React.PointerEventHandler< HTMLDivElement > = (
+		event
+	) => {
+		if ( event.target === event.currentTarget ) {
+			event.preventDefault();
+			onRequestClose( event );
+		}
+	};
+
 	return createPortal(
 		// eslint-disable-next-line jsx-a11y/no-static-element-interactions
 		<div
@@ -179,6 +188,13 @@ function UnforwardedModal(
 				overlayClassName
 			) }
 			onKeyDown={ handleEscapeKeyDown }
+			// Avoids loss of focus from clicking the overlay and also obviates
+			// `useFocusOutside` aside from cases of focus programmatically
+			// moving outside. TODO ideally both the hook and this handler
+			// won't be needed and one can be removed.
+			onPointerDown={
+				shouldCloseOnClickOutside ? onOverlayPress : undefined
+			}
 		>
 			<StyleProvider document={ document }>
 				<div
diff --git a/packages/components/src/modal/test/index.tsx b/packages/components/src/modal/test/index.tsx
index 63ff485c35458..370a93cd04e76 100644
--- a/packages/components/src/modal/test/index.tsx
+++ b/packages/components/src/modal/test/index.tsx
@@ -4,6 +4,11 @@
 import { render, screen, within } from '@testing-library/react';
 import userEvent from '@testing-library/user-event';
 
+/**
+ * WordPress dependencies
+ */
+import { useState } from '@wordpress/element';
+
 /**
  * Internal dependencies
  */
@@ -82,4 +87,32 @@ describe( 'Modal', () => {
 		await user.keyboard( '[Escape]' );
 		expect( onRequestClose ).toHaveBeenCalled();
 	} );
+
+	it( 'should return focus when dismissed by clicking outside', async () => {
+		const user = userEvent.setup();
+		const ReturnDemo = () => {
+			const [ isShown, setIsShown ] = useState( false );
+			return (
+				<div>
+					<button onClick={ () => setIsShown( true ) }>📣</button>
+					{ isShown && (
+						<Modal onRequestClose={ () => setIsShown( false ) }>
+							<p>Modal content</p>
+						</Modal>
+					) }
+				</div>
+			);
+		};
+		render( <ReturnDemo /> );
+
+		const opener = screen.getByRole( 'button' );
+		await user.click( opener );
+		const modalFrame = screen.getByRole( 'dialog' );
+		expect( modalFrame ).toHaveFocus();
+
+		// Disable reason: No semantic query can reach the overlay.
+		// eslint-disable-next-line testing-library/no-node-access
+		await user.click( modalFrame.parentElement! );
+		expect( opener ).toHaveFocus();
+	} );
 } );