diff --git a/docs/pages/resources/changelog.md b/docs/pages/resources/changelog.md
index e4dab556..a6e70970 100644
--- a/docs/pages/resources/changelog.md
+++ b/docs/pages/resources/changelog.md
@@ -12,6 +12,10 @@ Components with the <sl-badge variant="warning" pill>Experimental</sl-badge> bad
 
 New versions of Shoelace are released as-needed and generally occur when a critical mass of changes have accumulated. At any time, you can see what's coming in the next release by visiting [next.shoelace.style](https://next.shoelace.style).
 
+## next
+
+- Fixed a bug that prevented `<sl-tab-group>` to be activated properly when rendered in another `<sl-tab-group>` (#2367)
+
 ## 2.20.0
 
 - Added the ability to set a custom snap function and use `repeat(n)` to `<sl-split-panel>` [#2340]
diff --git a/src/components/tab-group/tab-group.component.ts b/src/components/tab-group/tab-group.component.ts
index 5e7064fd..8a9de2bc 100644
--- a/src/components/tab-group/tab-group.component.ts
+++ b/src/components/tab-group/tab-group.component.ts
@@ -93,17 +93,33 @@ export default class SlTabGroup extends ShoelaceElement {
     });
 
     this.mutationObserver = new MutationObserver(mutations => {
+      // Make sure to only observe the direct children of the tab group
+      // instead of other sub elements that might be slotted in.
+      // @see https://github.com/shoelace-style/shoelace/issues/2320
+      const instanceMutations = mutations.filter(({ target }) => {
+        if (target === this) return true; // Allow self updates
+        if ((target as HTMLElement).closest('sl-tab-group') !== this) return false; // We are not direct children
+
+        // We should only care about changes to the tab or tab panel
+        const tagName = (target as HTMLElement).tagName.toLowerCase();
+        return tagName === 'sl-tab' || tagName === 'sl-tab-panel';
+      });
+
+      if (instanceMutations.length === 0) {
+        return;
+      }
+
       // Update aria labels when the DOM changes
-      if (mutations.some(m => !['aria-labelledby', 'aria-controls'].includes(m.attributeName!))) {
+      if (instanceMutations.some(m => !['aria-labelledby', 'aria-controls'].includes(m.attributeName!))) {
         setTimeout(() => this.setAriaLabels());
       }
 
       // Sync tabs when disabled states change
-      if (mutations.some(m => m.attributeName === 'disabled')) {
+      if (instanceMutations.some(m => m.attributeName === 'disabled')) {
         this.syncTabsAndPanels();
         // sync tabs when active state on tab changes
-      } else if (mutations.some(m => m.attributeName === 'active')) {
-        const tabs = mutations
+      } else if (instanceMutations.some(m => m.attributeName === 'active')) {
+        const tabs = instanceMutations
           .filter(m => m.attributeName === 'active' && (m.target as HTMLElement).tagName.toLowerCase() === 'sl-tab')
           .map(m => m.target as SlTab);
         const newActiveTab = tabs.find(tab => tab.active);
@@ -117,7 +133,14 @@ export default class SlTabGroup extends ShoelaceElement {
     // After the first update...
     this.updateComplete.then(() => {
       this.syncTabsAndPanels();
-      this.mutationObserver.observe(this, { attributes: true, childList: true, subtree: true });
+
+      this.mutationObserver.observe(this, {
+        attributes: true,
+        attributeFilter: ['active', 'disabled', 'name', 'panel'],
+        childList: true,
+        subtree: true
+      });
+
       this.resizeObserver.observe(this.nav);
 
       // Wait for tabs and tab panels to be registered