diff --git a/.changeset/fix-dropdown-in-dialog-dismiss-3971.md b/.changeset/fix-dropdown-in-dialog-dismiss-3971.md
new file mode 100644
index 0000000000..5ee41b3429
--- /dev/null
+++ b/.changeset/fix-dropdown-in-dialog-dismiss-3971.md
@@ -0,0 +1,8 @@
+---
+'@radix-ui/react-menu': patch
+'@radix-ui/react-dropdown-menu': patch
+'@radix-ui/react-context-menu': patch
+'@radix-ui/react-menubar': patch
+---
+
+Defer outside pointer interactions on menu content so nested dialogs are not dismissed when closing a menu.
diff --git a/apps/storybook/stories/dropdown-menu.stories.tsx b/apps/storybook/stories/dropdown-menu.stories.tsx
index f387437829..3c8a1e3bd2 100644
--- a/apps/storybook/stories/dropdown-menu.stories.tsx
+++ b/apps/storybook/stories/dropdown-menu.stories.tsx
@@ -564,6 +564,28 @@ export const NestedComposition = () => {
   );
 };
 
+export const DropdownWithinDialog = () => (
+  <Dialog.Root defaultOpen>
+    <Dialog.Portal>
+      <Dialog.Overlay />
+      <Dialog.Content className={styles.dialog} style={{ padding: 24 }}>
+        <Dialog.Title>Dialog with dropdown</Dialog.Title>
+        <DropdownMenu.Root defaultOpen>
+          <DropdownMenu.Trigger className={styles.trigger}>Open menu</DropdownMenu.Trigger>
+          <DropdownMenu.Portal>
+            <DropdownMenu.Content className={styles.content} sideOffset={5}>
+              <DropdownMenu.Item className={styles.item}>Item 1</DropdownMenu.Item>
+              <DropdownMenu.Item className={styles.item}>Item 2</DropdownMenu.Item>
+              <DropdownMenu.Arrow />
+            </DropdownMenu.Content>
+          </DropdownMenu.Portal>
+        </DropdownMenu.Root>
+        <p data-testid="dialog-open-indicator">Dialog is still open</p>
+      </Dialog.Content>
+    </Dialog.Portal>
+  </Dialog.Root>
+);
+
 export const SingleItemAsDialogTrigger = () => {
   const dropdownTriggerRef = React.useRef<React.ComponentRef<typeof DropdownMenu.Trigger>>(null);
   const dropdownTriggerRef2 = React.useRef<React.ComponentRef<typeof DropdownMenu.Trigger>>(null);
diff --git a/packages/react/dismissable-layer/src/dismissable-layer.test.tsx b/packages/react/dismissable-layer/src/dismissable-layer.test.tsx
index 4ad5769f49..5903017f78 100644
--- a/packages/react/dismissable-layer/src/dismissable-layer.test.tsx
+++ b/packages/react/dismissable-layer/src/dismissable-layer.test.tsx
@@ -395,4 +395,31 @@ describe('DismissableLayer', () => {
 
     expect(onDismiss).not.toHaveBeenCalled();
   });
+
+  // Regression test for https://github.com/radix-ui/primitives/issues/3971
+  it('does not dismiss a deferred parent when a nested deferred child dismisses first', async () => {
+    const onParentDismiss = vi.fn();
+    const onChildDismiss = vi.fn();
+
+    render(
+      <>
+        <DismissableLayer.Root deferPointerDownOutside onDismiss={onParentDismiss}>
+          <div data-testid="parent-inside">dialog</div>
+          <DismissableLayer.Root deferPointerDownOutside onDismiss={onChildDismiss}>
+            <div data-testid="child-inside">menu</div>
+          </DismissableLayer.Root>
+        </DismissableLayer.Root>
+      </>,
+    );
+    await waitForDocumentPointerDownListener();
+
+    firePointerMouseClick(screen.getByTestId('parent-inside'));
+
+    await act(async () => {
+      await new Promise((resolve) => window.setTimeout(resolve, 0));
+    });
+
+    expect(onChildDismiss).toHaveBeenCalledTimes(1);
+    expect(onParentDismiss).not.toHaveBeenCalled();
+  });
 });
diff --git a/packages/react/menu/src/menu.tsx b/packages/react/menu/src/menu.tsx
index 6011982e6d..e4fc3289c3 100644
--- a/packages/react/menu/src/menu.tsx
+++ b/packages/react/menu/src/menu.tsx
@@ -490,6 +490,7 @@ const MenuContentImpl = React.forwardRef<MenuContentImplElement, MenuContentImpl
             <DismissableLayer
               asChild
               disableOutsidePointerEvents={disableOutsidePointerEvents}
+              deferPointerDownOutside
               onEscapeKeyDown={onEscapeKeyDown}
               onPointerDownOutside={onPointerDownOutside}
               onFocusOutside={onFocusOutside}