diff --git a/.changeset/react-compiler-label-group.md b/.changeset/react-compiler-label-group.md
new file mode 100644
index 00000000000..79fa129f270
--- /dev/null
+++ b/.changeset/react-compiler-label-group.md
@@ -0,0 +1,5 @@
+---
+'@primer/react': minor
+---
+
+LabelGroup: Improve rendering performance with React Compiler support.
diff --git a/packages/react/script/react-compiler.mjs b/packages/react/script/react-compiler.mjs
index 95a9ee98b36..840e1825f89 100644
--- a/packages/react/script/react-compiler.mjs
+++ b/packages/react/script/react-compiler.mjs
@@ -15,7 +15,6 @@ const unsupportedPatterns = [
   'src/ActionMenu/ActionMenu.test.tsx',
   'src/AnchoredOverlay/AnchoredOverlay.tsx',
   'src/FilteredActionList/FilteredActionList.tsx',
-  'src/LabelGroup/LabelGroup.tsx',
   'src/Overlay/Overlay.figma.tsx',
   'src/SelectPanel/SelectPanel.examples.stories.tsx',
   'src/SelectPanel/SelectPanel.test.tsx',
diff --git a/packages/react/src/LabelGroup/LabelGroup.test.tsx b/packages/react/src/LabelGroup/LabelGroup.test.tsx
index d35c143d599..e670bcce013 100644
--- a/packages/react/src/LabelGroup/LabelGroup.test.tsx
+++ b/packages/react/src/LabelGroup/LabelGroup.test.tsx
@@ -171,6 +171,71 @@ describe('LabelGroup', () => {
     expect(fourthLabel).toBeVisible()
   })
 
+  it('sizes the overlay to cover the labels through the expand button after truncation changes', async () => {
+    const user = userEvent.setup()
+    const example = (visibleChildCount: number) => {
+      return (
+        <ThemeAndStyleContainer>
+          <LabelGroup visibleChildCount={visibleChildCount}>
+            <Label>One</Label>
+            <Label>Two</Label>
+            <Label>Three</Label>
+          </LabelGroup>
+        </ThemeAndStyleContainer>
+      )
+    }
+    const {getByRole, rerender} = render(example(1))
+
+    for (const visibleChildCount of [1, 2]) {
+      rerender(example(visibleChildCount))
+      const expandButton = getByRole('button', {
+        name: `Show +${3 - visibleChildCount} more`,
+      })
+      const expectedWidth =
+        expandButton.getBoundingClientRect().right - getByRole('list').getBoundingClientRect().left + 8
+
+      await user.click(expandButton)
+
+      const overlayContainer = getByRole('dialog').querySelector<HTMLElement>(`.${classes.OverlayContainer}`)
+      expect(overlayContainer).not.toBeNull()
+      expect(Number.parseFloat(overlayContainer?.style.width ?? '')).toBeCloseTo(expectedWidth)
+
+      await user.click(
+        getByRole('button', {
+          name: 'Close',
+        }),
+      )
+      await waitFor(() => {
+        expect(expandButton).toHaveFocus()
+      })
+    }
+  })
+
+  it('focuses the first previously hidden control when expanded inline', async () => {
+    const user = userEvent.setup()
+    const {getByRole} = render(
+      <ThemeAndStyleContainer>
+        <LabelGroup visibleChildCount={1} overflowStyle="inline">
+          <button type="button">One</button>
+          <button type="button">Two</button>
+          <button type="button">Three</button>
+        </LabelGroup>
+      </ThemeAndStyleContainer>,
+    )
+
+    await user.click(
+      getByRole('button', {
+        name: 'Show +2 more',
+      }),
+    )
+
+    expect(
+      getByRole('button', {
+        name: 'Two',
+      }),
+    ).toHaveFocus()
+  })
+
   it('should focus the collapse button when expanded, and the expand button when collapsed', async () => {
     const user = userEvent.setup()
     const {getByText} = render(
diff --git a/packages/react/src/LabelGroup/LabelGroup.tsx b/packages/react/src/LabelGroup/LabelGroup.tsx
index 3fb0727b03f..1e84c155329 100644
--- a/packages/react/src/LabelGroup/LabelGroup.tsx
+++ b/packages/react/src/LabelGroup/LabelGroup.tsx
@@ -5,6 +5,7 @@ import VisuallyHidden from '../_VisuallyHidden'
 import {AnchoredOverlay} from '../AnchoredOverlay'
 import {Button, IconButton} from '../Button'
 import {clsx} from 'clsx'
+import useLayoutEffect from '../utils/useIsomorphicLayoutEffect'
 import classes from './LabelGroup.module.css'
 
 export type LabelGroupProps = {
@@ -16,17 +17,10 @@ export type LabelGroupProps = {
   visibleChildCount?: 'auto' | number
   className?: string
 }
-// Calculates the width of the overlay to cover the labels/tokens and the expand button.
-const getOverlayWidth = (
-  buttonClientRect: DOMRect,
-  containerRef: React.RefObject<HTMLElement>,
-  overlayPaddingPx: number,
-) => overlayPaddingPx + buttonClientRect.right - (containerRef.current?.getBoundingClientRect().left || 0)
-
 const InlineToggle: React.FC<{
   collapseButtonRef: React.RefObject<HTMLButtonElement>
   collapseInlineExpandedChildren: () => void
-  expandButtonRef: React.RefCallback<HTMLButtonElement>
+  expandButtonRef: React.RefObject<HTMLButtonElement>
   hiddenItemIds: string[]
   isOverflowShown: boolean
   showAllTokensInline: () => void
@@ -53,7 +47,7 @@ const InlineToggle: React.FC<{
 const OverlayToggle: React.FC<
   React.PropsWithChildren<{
     closeOverflowOverlay: () => void
-    expandButtonRef: React.RefCallback<HTMLButtonElement>
+    expandButtonRef: React.RefObject<HTMLButtonElement>
     hiddenItemIds: string[]
     isOverflowShown: boolean
     openOverflowOverlay: () => void
@@ -81,8 +75,7 @@ const OverlayToggle: React.FC<
       height="auto"
       align="start"
       side="inside-right"
-      // expandButtonRef satisfies React.RefObject<HTMLButtonElement> because we manually set `.current` in the `useCallback` above
-      anchorRef={expandButtonRef as unknown as React.RefObject<HTMLButtonElement>}
+      anchorRef={expandButtonRef}
       anchorOffset={overlayPaddingPx * -1}
       alignmentOffset={overlayPaddingPx * -1}
       renderAnchor={props => (
@@ -116,51 +109,49 @@ const LabelGroup: React.FC<React.PropsWithChildren<LabelGroupProps>> = ({
   className,
 }) => {
   const containerRef = React.useRef<HTMLElement>(null)
+  const expandButtonRef = React.useRef<HTMLButtonElement>(null)
   const collapseButtonRef = React.useRef<HTMLButtonElement>(null)
   const firstHiddenIndexRef = React.useRef<number | undefined>(undefined)
   const [visibilityMap, setVisibilityMap] = React.useState<Record<string, boolean>>({})
   const [isOverflowShown, setIsOverflowShown] = React.useState<boolean>(false)
-  const [buttonClientRect, setButtonClientRect] = React.useState<DOMRect>({
-    width: 0,
-    right: 0,
-    height: 0,
-    x: 0,
-    y: 0,
-    top: 0,
-    left: 0,
-    bottom: 0,
-    toJSON: () => undefined,
-  })
+  const [buttonWidth, setButtonWidth] = React.useState(0)
+  const [overlayWidth, setOverlayWidth] = React.useState<number | undefined>(undefined)
 
   const overlayPaddingPx = 8 // var(--base-size-8), hardcoded to do some math
   const hiddenItemIds = Object.keys(visibilityMap).filter(key => !visibilityMap[key])
 
-  // `overlayWidth` is only needed when we render an overlay
-  // if we don't use an overlay, we can skip the width calculation
-  // and save on reflows caused by measuring DOM nodes.
-  const overlayWidth =
-    hiddenItemIds.length && overflowStyle === 'overlay'
-      ? // eslint-disable-next-line react-hooks/refs
-        getOverlayWidth(buttonClientRect, containerRef, overlayPaddingPx)
-      : undefined
-
-  const expandButtonRef: React.RefCallback<HTMLButtonElement> = React.useCallback(
-    // eslint-disable-next-line react-hooks/immutability
-    node => {
-      if (node !== null) {
-        const nodeClientRect = node.getBoundingClientRect()
+  // Measure layout changes after commit rather than reading refs during render.
+  // Equality checks keep measurement updates from causing a loop.
+  useLayoutEffect(() => {
+    const button = expandButtonRef.current
+    if (!visibleChildCount || !button) {
+      return
+    }
 
-        if (nodeClientRect.width !== buttonClientRect.width || nodeClientRect.right !== buttonClientRect.right) {
-          setButtonClientRect(nodeClientRect)
-        }
+    const buttonClientRect = button.getBoundingClientRect()
+    if (buttonClientRect.width !== buttonWidth) {
+      setButtonWidth(buttonClientRect.width)
+    }
 
-        // @ts-ignore you can set `.current` on ref objects or ref callbacks in React
-        // eslint-disable-next-line react-hooks/immutability
-        expandButtonRef.current = node
+    // Only measure the container when an overlay needs to cover the labels.
+    if (hiddenItemIds.length && overflowStyle === 'overlay') {
+      const width =
+        overlayPaddingPx + buttonClientRect.right - (containerRef.current?.getBoundingClientRect().left || 0)
+      if (width !== overlayWidth) {
+        setOverlayWidth(width)
       }
-    },
-    [buttonClientRect],
-  )
+    }
+  }, [
+    Component,
+    buttonWidth,
+    children,
+    className,
+    hiddenItemIds,
+    isOverflowShown,
+    overflowStyle,
+    overlayWidth,
+    visibleChildCount,
+  ])
 
   // Sets the visibility map to hide children after the given index.
   const hideChildrenAfterIndex = React.useCallback((truncateAfter: number) => {
@@ -193,7 +184,6 @@ const LabelGroup: React.FC<React.PropsWithChildren<LabelGroupProps>> = ({
     // list in an overlay.
     // TODO: get rid of this hack
     setTimeout(() => {
-      // @ts-ignore you can set `.current` on ref objects or ref callbacks in React
       expandButtonRef.current?.focus()
     }, 10)
   }, [expandButtonRef, hideChildrenAfterIndex, visibleChildCount])
@@ -213,7 +203,7 @@ const LabelGroup: React.FC<React.PropsWithChildren<LabelGroupProps>> = ({
     if (visibleChildCount === 'auto') {
       // Instantiates the IntersectionObserver to track when children fit in the container.
       const observer = new IntersectionObserver(
-        (entries: IntersectionObserverEntry[]) => {
+        (entries: Array<IntersectionObserverEntry>) => {
           const updatedEntries: Record<string, boolean> = {}
 
           for (const entry of entries) {
@@ -232,7 +222,7 @@ const LabelGroup: React.FC<React.PropsWithChildren<LabelGroupProps>> = ({
         },
         {
           root: containerRef.current,
-          rootMargin: `0px -${buttonClientRect.width}px 0px 0px`,
+          rootMargin: `0px -${buttonWidth}px 0px 0px`,
           threshold: 1,
         },
       )
@@ -250,7 +240,7 @@ const LabelGroup: React.FC<React.PropsWithChildren<LabelGroupProps>> = ({
       // eslint-disable-next-line react-hooks/set-state-in-effect
       hideChildrenAfterIndex(visibleChildCount)
     }
-  }, [buttonClientRect, visibleChildCount, hideChildrenAfterIndex, isOverflowShown])
+  }, [buttonWidth, visibleChildCount, hideChildrenAfterIndex, isOverflowShown])
 
   // Updates the index of the first hidden child.
   // We need to keep track of this so we can focus the first hidden child when the overflow is shown inline.