diff --git a/packages/@headlessui-react/CHANGELOG.md b/packages/@headlessui-react/CHANGELOG.md
index 9c2ad31..1a49a7b 100644
--- a/packages/@headlessui-react/CHANGELOG.md
+++ b/packages/@headlessui-react/CHANGELOG.md
@@ -12,6 +12,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - Fix SSR tab rendering on React 17 ([#2102](https://github.com/tailwindlabs/headlessui/pull/2102))
 - Fix arrow key handling in `Tab` (after DOM order changes) ([#2145](https://github.com/tailwindlabs/headlessui/pull/2145))
 - Fix false positive warning about using multiple `<Popover.Button>` components ([#2146](https://github.com/tailwindlabs/headlessui/pull/2146))
+- Fix `Tab` key with non focusable elements in `Popover.Panel` ([#2147](https://github.com/tailwindlabs/headlessui/pull/2147))
 
 ## [1.7.7] - 2022-12-16
 
diff --git a/packages/@headlessui-react/src/components/popover/popover.test.tsx b/packages/@headlessui-react/src/components/popover/popover.test.tsx
index 9ed734d..fb6d760 100644
--- a/packages/@headlessui-react/src/components/popover/popover.test.tsx
+++ b/packages/@headlessui-react/src/components/popover/popover.test.tsx
@@ -1335,6 +1335,40 @@ describe('Keyboard interactions', () => {
       })
     )
 
+    it(
+      'should close the Popover menu once we Tab out of a Popover without focusable elements',
+      suppressConsoleLogs(async () => {
+        render(
+          <>
+            <a href="/">Previous</a>
+
+            <Popover>
+              <Popover.Button>Trigger 1</Popover.Button>
+              <Popover.Panel>No focusable elements here</Popover.Panel>
+            </Popover>
+
+            <a href="/">Next</a>
+          </>
+        )
+
+        // Focus the button of the Popover
+        await focus(getPopoverButton())
+
+        // Open popover
+        await click(getPopoverButton())
+
+        // Let's Tab out of the Popover
+        await press(Keys.Tab)
+
+        // Verify the next link is now focused
+        assertActiveElement(getByText('Next'))
+
+        // Verify the popover is closed
+        assertPopoverButton({ state: PopoverState.InvisibleUnmounted })
+        assertPopoverPanel({ state: PopoverState.InvisibleUnmounted })
+      })
+    )
+
     it(
       'should close the Popover when the Popover.Panel has a focus prop',
       suppressConsoleLogs(async () => {
diff --git a/packages/@headlessui-react/src/components/popover/popover.tsx b/packages/@headlessui-react/src/components/popover/popover.tsx
index 31c9d79..a6f7176 100644
--- a/packages/@headlessui-react/src/components/popover/popover.tsx
+++ b/packages/@headlessui-react/src/components/popover/popover.tsx
@@ -33,6 +33,7 @@ import {
   focusIn,
   isFocusableElement,
   FocusableMode,
+  FocusResult,
 } from '../../utils/focus-management'
 import { OpenClosedProvider, State, useOpenClosed } from '../../internal/open-closed'
 import { useResolveButtonType } from '../../hooks/use-resolve-button-type'
@@ -526,10 +527,21 @@ let Button = forwardRefWithAs(function Button<TTag extends ElementType = typeof
     if (!el) return
 
     function run() {
-      match(direction.current, {
+      let result = match(direction.current, {
         [TabDirection.Forwards]: () => focusIn(el, Focus.First),
         [TabDirection.Backwards]: () => focusIn(el, Focus.Last),
       })
+
+      if (result === FocusResult.Error) {
+        focusIn(
+          getFocusableElements().filter((el) => el.dataset.headlessuiFocusGuard !== 'true'),
+          match(direction.current, {
+            [TabDirection.Forwards]: Focus.Next,
+            [TabDirection.Backwards]: Focus.Previous,
+          }),
+          { relativeTo: state.button }
+        )
+      }
     }
 
     // TODO: Cleanup once we are using real browser tests
@@ -553,6 +565,7 @@ let Button = forwardRefWithAs(function Button<TTag extends ElementType = typeof
         <Hidden
           id={sentinelId}
           features={HiddenFeatures.Focusable}
+          data-headlessui-focus-guard
           as="button"
           type="button"
           onFocus={handleFocus}
@@ -748,7 +761,12 @@ let Panel = forwardRefWithAs(function Panel<TTag extends ElementType = typeof DE
     function run() {
       match(direction.current, {
         [TabDirection.Forwards]: () => {
-          focusIn(el, Focus.First)
+          // Try to focus the first thing in the panel. But if that fails (e.g.: there are no
+          // focusable elements, then we can move outside of the panel)
+          let result = focusIn(el, Focus.First)
+          if (result === FocusResult.Error) {
+            state.afterPanelSentinel.current?.focus()
+          }
         },
         [TabDirection.Backwards]: () => {
           // Coming from the Popover.Panel (which is portalled to somewhere else). Let's redirect
@@ -785,10 +803,7 @@ let Panel = forwardRefWithAs(function Panel<TTag extends ElementType = typeof DE
 
           // Ignore sentinel buttons and items inside the panel
           for (let element of combined.slice()) {
-            if (
-              element?.id?.startsWith?.('headlessui-focus-sentinel-') ||
-              state.panel?.contains(element)
-            ) {
+            if (element.dataset.headlessuiFocusGuard === 'true' || state.panel?.contains(element)) {
               let idx = combined.indexOf(element)
               if (idx !== -1) combined.splice(idx, 1)
             }
@@ -796,7 +811,14 @@ let Panel = forwardRefWithAs(function Panel<TTag extends ElementType = typeof DE
 
           focusIn(combined, Focus.First, { sorted: false })
         },
-        [TabDirection.Backwards]: () => focusIn(el, Focus.Last),
+        [TabDirection.Backwards]: () => {
+          // Try to focus the first thing in the panel. But if that fails (e.g.: there are no
+          // focusable elements, then we can move outside of the panel)
+          let result = focusIn(el, Focus.Previous)
+          if (result === FocusResult.Error) {
+            state.button?.focus()
+          }
+        },
       })
     }
 
@@ -815,6 +837,7 @@ let Panel = forwardRefWithAs(function Panel<TTag extends ElementType = typeof DE
           id={beforePanelSentinelId}
           ref={state.beforePanelSentinel}
           features={HiddenFeatures.Focusable}
+          data-headlessui-focus-guard
           as="button"
           type="button"
           onFocus={handleBeforeFocus}
@@ -834,6 +857,7 @@ let Panel = forwardRefWithAs(function Panel<TTag extends ElementType = typeof DE
           id={afterPanelSentinelId}
           ref={state.afterPanelSentinel}
           features={HiddenFeatures.Focusable}
+          data-headlessui-focus-guard
           as="button"
           type="button"
           onFocus={handleAfterFocus}
diff --git a/packages/@headlessui-vue/CHANGELOG.md b/packages/@headlessui-vue/CHANGELOG.md
index a944e00..95c12df 100644
--- a/packages/@headlessui-vue/CHANGELOG.md
+++ b/packages/@headlessui-vue/CHANGELOG.md
@@ -15,6 +15,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 - Ensure `disabled="false"` is not incorrectly passed to the underlying DOM Node ([#2138](https://github.com/tailwindlabs/headlessui/pull/2138))
 - Fix arrow key handling in `Tab` (after DOM order changes) ([#2145](https://github.com/tailwindlabs/headlessui/pull/2145))
+- Fix `Tab` key with non focusable elements in `Popover.Panel` ([#2147](https://github.com/tailwindlabs/headlessui/pull/2147))
 
 ## [1.7.7] - 2022-12-16
 
diff --git a/packages/@headlessui-vue/src/components/dialog/dialog.test.ts b/packages/@headlessui-vue/src/components/dialog/dialog.test.ts
index 3ec863e..9d4bac9 100644
--- a/packages/@headlessui-vue/src/components/dialog/dialog.test.ts
+++ b/packages/@headlessui-vue/src/components/dialog/dialog.test.ts
@@ -1475,7 +1475,7 @@ describe('Mouse interactions', () => {
     })
   )
 
-  fit(
+  it(
     'should be possible to click elements inside the dialog when they reside inside a shadow boundary',
     suppressConsoleLogs(async () => {
       let fn = jest.fn()
diff --git a/packages/@headlessui-vue/src/components/popover/popover.test.ts b/packages/@headlessui-vue/src/components/popover/popover.test.ts
index 126cfb5..f048460 100644
--- a/packages/@headlessui-vue/src/components/popover/popover.test.ts
+++ b/packages/@headlessui-vue/src/components/popover/popover.test.ts
@@ -15,7 +15,7 @@ import {
   assertContainsActiveElement,
   getPopoverOverlay,
 } from '../../test-utils/accessibility-assertions'
-import { click, press, Keys, MouseButton, shift } from '../../test-utils/interactions'
+import { click, focus, press, Keys, MouseButton, shift } from '../../test-utils/interactions'
 import { html } from '../../test-utils/html'
 import { useOpenClosedProvider, State, useOpenClosed } from '../../internal/open-closed'
 
@@ -1369,6 +1369,40 @@ describe('Keyboard interactions', () => {
       })
     )
 
+    it(
+      'should close the Popover menu once we Tab out of a Popover without focusable elements',
+      suppressConsoleLogs(async () => {
+        renderTemplate(
+          html`
+            <div>
+              <Popover>
+                <PopoverButton>Trigger 1</PopoverButton>
+                <PopoverPanel>No focusable elements here</PopoverPanel>
+              </Popover>
+
+              <a href="/">Next</a>
+            </div>
+          `
+        )
+
+        // Focus the button of the Popover
+        await focus(getPopoverButton())
+
+        // Open popover
+        await click(getPopoverButton())
+
+        // Let's Tab out of the Popover
+        await press(Keys.Tab)
+
+        // Verify the next link is now focused
+        assertActiveElement(getByText('Next'))
+
+        // Verify the popover is closed
+        assertPopoverButton({ state: PopoverState.InvisibleUnmounted })
+        assertPopoverPanel({ state: PopoverState.InvisibleUnmounted })
+      })
+    )
+
     it(
       'should close the Popover when the PopoverPanel has a focus prop',
       suppressConsoleLogs(async () => {
diff --git a/packages/@headlessui-vue/src/components/popover/popover.ts b/packages/@headlessui-vue/src/components/popover/popover.ts
index f767ec8..c0dd983 100644
--- a/packages/@headlessui-vue/src/components/popover/popover.ts
+++ b/packages/@headlessui-vue/src/components/popover/popover.ts
@@ -26,6 +26,7 @@ import {
   focusIn,
   isFocusableElement,
   FocusableMode,
+  FocusResult,
 } from '../../utils/focus-management'
 import { dom } from '../../utils/dom'
 import { useOpenClosedProvider, State, useOpenClosed } from '../../internal/open-closed'
@@ -406,10 +407,21 @@ export let PopoverButton = defineComponent({
         if (!el) return
 
         function run() {
-          match(direction.value, {
+          let result = match(direction.value, {
             [TabDirection.Forwards]: () => focusIn(el, Focus.First),
             [TabDirection.Backwards]: () => focusIn(el, Focus.Last),
           })
+
+          if (result === FocusResult.Error) {
+            focusIn(
+              getFocusableElements().filter((el) => el.dataset.headlessuiFocusGuard !== 'true'),
+              match(direction.value, {
+                [TabDirection.Forwards]: Focus.Next,
+                [TabDirection.Backwards]: Focus.Previous,
+              }),
+              { relativeTo: dom(api.button) }
+            )
+          }
         }
 
         // TODO: Cleanup once we are using real browser tests
@@ -435,6 +447,7 @@ export let PopoverButton = defineComponent({
           h(Hidden, {
             id: sentinelId,
             features: HiddenFeatures.Focusable,
+            'data-headlessui-focus-guard': true,
             as: 'button',
             type: 'button',
             onFocus: handleFocus,
@@ -584,7 +597,12 @@ export let PopoverPanel = defineComponent({
       function run() {
         match(direction.value, {
           [TabDirection.Forwards]: () => {
-            focusIn(el, Focus.Next)
+            // Try to focus the first thing in the panel. But if that fails (e.g.: there are no
+            // focusable elements, then we can move outside of the panel)
+            let result = focusIn(el, Focus.First)
+            if (result === FocusResult.Error) {
+              dom(api.afterPanelSentinel)?.focus()
+            }
           },
           [TabDirection.Backwards]: () => {
             // Coming from the Popover.Panel (which is portalled to somewhere else). Let's redirect
@@ -623,10 +641,7 @@ export let PopoverPanel = defineComponent({
 
             // Ignore sentinel buttons and items inside the panel
             for (let element of combined.slice()) {
-              if (
-                element?.id?.startsWith?.('headlessui-focus-sentinel-') ||
-                panel?.contains(element)
-              ) {
+              if (element.dataset.headlessuiFocusGuard === 'true' || panel?.contains(element)) {
                 let idx = combined.indexOf(element)
                 if (idx !== -1) combined.splice(idx, 1)
               }
@@ -634,7 +649,14 @@ export let PopoverPanel = defineComponent({
 
             focusIn(combined, Focus.First, { sorted: false })
           },
-          [TabDirection.Backwards]: () => focusIn(el, Focus.Previous),
+          [TabDirection.Backwards]: () => {
+            // Try to focus the first thing in the panel. But if that fails (e.g.: there are no
+            // focusable elements, then we can move outside of the panel)
+            let result = focusIn(el, Focus.Previous)
+            if (result === FocusResult.Error) {
+              dom(api.button)?.focus()
+            }
+          },
         })
       }
 
@@ -676,6 +698,7 @@ export let PopoverPanel = defineComponent({
                   id: beforePanelSentinelId,
                   ref: api.beforePanelSentinel,
                   features: HiddenFeatures.Focusable,
+                  'data-headlessui-focus-guard': true,
                   as: 'button',
                   type: 'button',
                   onFocus: handleBeforeFocus,
@@ -687,6 +710,7 @@ export let PopoverPanel = defineComponent({
                   id: afterPanelSentinelId,
                   ref: api.afterPanelSentinel,
                   features: HiddenFeatures.Focusable,
+                  'data-headlessui-focus-guard': true,
                   as: 'button',
                   type: 'button',
                   onFocus: handleAfterFocus,