diff --git a/.changeset/fruity-points-agree.md b/.changeset/fruity-points-agree.md
new file mode 100644
index 000000000..48bf26856
--- /dev/null
+++ b/.changeset/fruity-points-agree.md
@@ -0,0 +1,5 @@
+---
+"@launchpad-ui/components": patch
+---
+
+fix a bug around autoclose behavior in modals when a toast is present
diff --git a/packages/components/src/Modal.tsx b/packages/components/src/Modal.tsx
index 012266631..d14acc037 100644
--- a/packages/components/src/Modal.tsx
+++ b/packages/components/src/Modal.tsx
@@ -94,6 +94,19 @@ const ModalOverlay = ({ isDismissable = true, ref, ...props }: ModalOverlayProps
 	return (
 		<AriaModalOverlay
 			isDismissable={isDismissable}
+			shouldCloseOnInteractOutside={(element) => {
+				// Don't close when the element being checked is HTML or BODY.
+				// This indicates a portal interaction (e.g., spawning a toast from a button).
+				//
+				// Why this is safe:
+				// - When users click the modal backdrop, the element is the overlay <div>, NOT HTML/BODY
+				// - HTML/BODY only appear here during React portal rendering edge cases
+				// - This prevents the modal from incorrectly closing when triggering toasts from modal buttons
+				// - Legitimate outside clicks (backdrop, other UI) still close the modal as expected
+				const isRootElement = element.tagName === 'HTML' || element.tagName === 'BODY';
+
+				return !isRootElement;
+			}}
 			{...props}
 			ref={ref}
 			className={composeRenderProps(props.className, (className, renderProps) =>
diff --git a/packages/components/stories/Modal.stories.tsx b/packages/components/stories/Modal.stories.tsx
index a2a5a9d75..12ee1d4fd 100644
--- a/packages/components/stories/Modal.stories.tsx
+++ b/packages/components/stories/Modal.stories.tsx
@@ -11,6 +11,7 @@ import { Heading } from '../src/Heading';
 import { IconButton } from '../src/IconButton';
 import { Modal, ModalOverlay } from '../src/Modal';
 import { Text } from '../src/Text';
+import { ToastRegion, toastQueue } from '../src/Toast';
 
 const meta: Meta<typeof Modal> = {
 	component: Modal,
@@ -110,3 +111,73 @@ export const Drawer: Story = {
 		},
 	},
 };
+
+/**
+ * Bug reproduction: Dialog closes when clicking a button inside it while Toast is active.
+ *
+ * Steps to reproduce:
+ * 1. Click "Show Toast" to display a toast notification
+ * 2. Click "Open Dialog" to open the modal
+ * 3. Click "Click Me" button inside the dialog
+ *
+ * Expected: Button click should work normally, dialog stays open
+ * Actual: Dialog closes unexpectedly
+ */
+export const DialogWithActiveToast: Story = {
+	render: (args) => {
+		return (
+			<>
+				<ToastRegion />
+				<div style={{ display: 'flex', gap: '1rem', marginBottom: '1rem' }}>
+					<DialogTrigger>
+						<Button variant="primary">Open Dialog</Button>
+						<ModalOverlay>
+							<Modal {...args}>
+								<Dialog>
+									{({ close }) => (
+										<>
+											<div slot="header">
+												<Heading slot="title">Dialog with Toast Active</Heading>
+												<IconButton
+													aria-label="close"
+													icon="cancel"
+													size="small"
+													variant="minimal"
+													onPress={close}
+												/>
+												<Text slot="subtitle">Try clicking the button below with toast active</Text>
+											</div>
+											<div slot="body">
+												<p>
+													When a toast is visible, clicking the button below should NOT close the
+													dialog.
+												</p>
+												<div style={{ marginTop: '1rem' }}>
+													<Button
+														onPress={() => {
+															toastQueue.add({
+																title: 'Toast is active',
+																description: 'Now try clicking the button inside the dialog',
+																status: 'info',
+															});
+														}}
+													>
+														Show Toast
+													</Button>{' '}
+												</div>
+											</div>
+											<div slot="footer">
+												<Button slot="close">Cancel</Button>
+												<Button variant="primary">Confirm</Button>
+											</div>
+										</>
+									)}
+								</Dialog>
+							</Modal>
+						</ModalOverlay>
+					</DialogTrigger>
+				</div>
+			</>
+		);
+	},
+};