diff --git a/packages/smart-forms-renderer/src/components/FormComponents/ItemParts/ItemLabel.tsx b/packages/smart-forms-renderer/src/components/FormComponents/ItemParts/ItemLabel.tsx
index 00ed4bf78..fe7b7ee6b 100644
--- a/packages/smart-forms-renderer/src/components/FormComponents/ItemParts/ItemLabel.tsx
+++ b/packages/smart-forms-renderer/src/components/FormComponents/ItemParts/ItemLabel.tsx
@@ -67,6 +67,15 @@ const ItemLabel = memo(function ItemLabel(props: ItemLabelProps) {
           sx={{
             mt: 0.5,
             flexGrow: 1,
+            // A question label is a single run of text, so the outer paragraph margins that xhtml/markdown
+            // rendering adds would only push it out of line with its field. Display items are standalone
+            // blocks of prose, so they keep their paragraph spacing.
+            ...(isDisplayItem
+              ? {}
+              : {
+                  '& p:first-of-type': { marginBlockStart: 0 },
+                  '& p:last-of-type': { marginBlockEnd: 0 }
+                }),
             ...(parentStyles || {})
           }}>
           {/* Required asterisk position is in front of text */}
@@ -79,12 +88,17 @@ const ItemLabel = memo(function ItemLabel(props: ItemLabelProps) {
             </RequiredAsterisk>
           ) : null}
 
+          {/* verticalAlign: top is required because an inline-flex box takes its baseline from its first
+              flex item. Once the label text wraps onto multiple lines, that baseline sits well below the
+              surrounding line box's baseline, which pushes the whole label down and away from its field.
+              Aligning the box to the top of the line box keeps multi-line labels in line with their fields. */}
           <Box
             component="span"
             display="inline-flex"
             alignItems="baseline"
             gap={0.5}
-            flexWrap="wrap">
+            flexWrap="wrap"
+            sx={{ verticalAlign: 'top' }}>
             <ItemPrefixSwitcher qItem={qItem} />
             <ItemTextSwitcher qItem={qItem} />
           </Box>
diff --git a/packages/smart-forms-renderer/src/stories/assets/questionnaires/QRenderingTextAppearance.ts b/packages/smart-forms-renderer/src/stories/assets/questionnaires/QRenderingTextAppearance.ts
index 405d485fb..496cf7514 100644
--- a/packages/smart-forms-renderer/src/stories/assets/questionnaires/QRenderingTextAppearance.ts
+++ b/packages/smart-forms-renderer/src/stories/assets/questionnaires/QRenderingTextAppearance.ts
@@ -905,3 +905,40 @@ export const qRenderingAnswerOptionValueString: Questionnaire = {
     }
   ]
 };
+
+// Labels long enough to wrap onto multiple lines, both as plain text and as rendering-xhtml.
+// Guards against https://github.com/aehrc/smart-forms/issues/2048, where a wrapping label was
+// pushed below its field instead of staying in line with it.
+export const qWrappingItemLabels: Questionnaire = {
+  resourceType: 'Questionnaire',
+  status: 'draft',
+  item: [
+    {
+      linkId: 'wrapping-label-plain',
+      text: 'Do you have access to the Aus CVD Risk-i application from your clinical system?',
+      type: 'boolean',
+      repeats: false
+    },
+    {
+      linkId: 'wrapping-label-xhtml',
+      text: 'Do you have access to the Aus CVD Risk-i application from your clinical system?',
+      _text: {
+        extension: [
+          {
+            url: 'http://hl7.org/fhir/StructureDefinition/rendering-xhtml',
+            valueString:
+              '<div xmlns="http://www.w3.org/1999/xhtml"><p>Do you have access to the <em>Aus&nbsp;CVD&nbsp;Risk&#8209;i</em> application from your clinical system?</p></div>'
+          }
+        ]
+      },
+      type: 'boolean',
+      repeats: false
+    },
+    {
+      linkId: 'wrapping-label-string',
+      text: 'Do you have access to the Aus CVD Risk-i application from your clinical system, and if so, which version?',
+      type: 'string',
+      repeats: false
+    }
+  ]
+};
diff --git a/packages/smart-forms-renderer/src/stories/sdc/RenderingTextAppearance.stories.tsx b/packages/smart-forms-renderer/src/stories/sdc/RenderingTextAppearance.stories.tsx
index 80cdb27ff..feb9379ae 100644
--- a/packages/smart-forms-renderer/src/stories/sdc/RenderingTextAppearance.stories.tsx
+++ b/packages/smart-forms-renderer/src/stories/sdc/RenderingTextAppearance.stories.tsx
@@ -36,9 +36,11 @@ import {
   qRenderingXhtmlGroupPropagationInlineStyles,
   qRenderingXhtmlGroupPropagationNested,
   qRenderingXhtmlPrefix,
-  qRenderingXhtmlTitle
+  qRenderingXhtmlTitle,
+  qWrappingItemLabels
 } from '../assets/questionnaires';
 import { createStory } from '../storybookWrappers/createStory';
+import { expect } from 'storybook/test';
 
 // More on how to set up stories at: https://storybook.js.org/docs/react/writing-stories/introduction#default-export
 const meta = {
@@ -170,3 +172,63 @@ export const PrefixOnlyNoText: Story = createStory({
     questionnaire: qPrefixOnlyNoText
   }
 }) as Story;
+
+// ── Wrapping item labels (Issue #2048) ───────────────────────────────────────
+
+export const WrappingItemLabels: Story = createStory({
+  args: {
+    questionnaire: qWrappingItemLabels
+  },
+  play: async ({ canvasElement }) => {
+    // Client rects of every glyph run inside an element, top-most first. Ranges over the element
+    // itself are no good here - they also report zero-width rects for the empty inlines that xhtml
+    // rendering introduces, which sit above the text they wrap.
+    function getTextLineTops(element: Element): number[] {
+      const walker = document.createTreeWalker(element, NodeFilter.SHOW_TEXT);
+      const tops = new Set<number>();
+
+      let textNode = walker.nextNode();
+      while (textNode) {
+        if (textNode.textContent?.trim()) {
+          const range = document.createRange();
+          range.selectNodeContents(textNode);
+          for (const rect of range.getClientRects()) {
+            if (rect.height > 0 && rect.width > 0) {
+              tops.add(rect.top);
+            }
+          }
+        }
+        textNode = walker.nextNode();
+      }
+
+      return [...tops].sort((a, b) => a - b);
+    }
+
+    // A label that wraps onto multiple lines must still start at the top of its row, in line with
+    // its field, rather than being pushed below it.
+    for (const linkId of [
+      'wrapping-label-plain',
+      'wrapping-label-xhtml',
+      'wrapping-label-string'
+    ]) {
+      const row = canvasElement.querySelector(`[data-linkid="${linkId}"]`);
+      if (!row) {
+        throw new Error(`Row was not found for [data-linkid="${linkId}"]`);
+      }
+
+      const label = row.querySelector(`#label-${linkId}`);
+      if (!label) {
+        throw new Error(`Label was not found for #label-${linkId}`);
+      }
+
+      const lineTops = getTextLineTops(label);
+
+      // Confirm the label actually wraps, otherwise this story isn't testing anything
+      expect(lineTops.length).toBeGreaterThan(1);
+
+      // Only ItemLabel's 4px nudge and the line's half-leading may sit above the first line of text
+      const offsetFromRowTop = lineTops[0] - row.getBoundingClientRect().top;
+      expect(offsetFromRowTop).toBeLessThanOrEqual(12);
+    }
+  }
+}) as Story;