diff --git a/docs/reference-guides/core-blocks.md b/docs/reference-guides/core-blocks.md
index 14f800f140aee..25fe5746a0412 100644
--- a/docs/reference-guides/core-blocks.md
+++ b/docs/reference-guides/core-blocks.md
@@ -429,7 +429,7 @@ Display a list of all pages. ([Source](https://github.com/WordPress/gutenberg/tr
 -	**Name:** core/page-list
 -	**Category:** widgets
 -	**Supports:** typography (fontSize, lineHeight), ~~html~~, ~~reusable~~
--	**Attributes:** parentPageID
+-	**Attributes:** isNested, parentPageID
 
 ## Page List Item
 
diff --git a/packages/block-library/src/page-list-item/edit.js b/packages/block-library/src/page-list-item/edit.js
index db8e0a5c17373..aa0836e774848 100644
--- a/packages/block-library/src/page-list-item/edit.js
+++ b/packages/block-library/src/page-list-item/edit.js
@@ -6,7 +6,7 @@ import classnames from 'classnames';
 /**
  * WordPress dependencies
  */
-import { InnerBlocks } from '@wordpress/block-editor';
+import { useBlockProps, useInnerBlocksProps } from '@wordpress/block-editor';
 import { useSelect } from '@wordpress/data';
 import { store as coreStore } from '@wordpress/core-data';
 
@@ -30,10 +30,95 @@ function useFrontPageId() {
 	}, [] );
 }
 
+/**
+ * Determine the colors for a menu.
+ *
+ * Order of priority is:
+ * 1: Overlay custom colors (if submenu)
+ * 2: Overlay theme colors (if submenu)
+ * 3: Custom colors
+ * 4: Theme colors
+ * 5: Global styles
+ *
+ * @param {Object}  context
+ * @param {boolean} isSubMenu
+ */
+function getColors( context, isSubMenu ) {
+	const {
+		textColor,
+		customTextColor,
+		backgroundColor,
+		customBackgroundColor,
+		overlayTextColor,
+		customOverlayTextColor,
+		overlayBackgroundColor,
+		customOverlayBackgroundColor,
+		style,
+	} = context;
+
+	const colors = {};
+
+	if ( isSubMenu && !! customOverlayTextColor ) {
+		colors.customTextColor = customOverlayTextColor;
+	} else if ( isSubMenu && !! overlayTextColor ) {
+		colors.textColor = overlayTextColor;
+	} else if ( !! customTextColor ) {
+		colors.customTextColor = customTextColor;
+	} else if ( !! textColor ) {
+		colors.textColor = textColor;
+	} else if ( !! style?.color?.text ) {
+		colors.customTextColor = style.color.text;
+	}
+
+	if ( isSubMenu && !! customOverlayBackgroundColor ) {
+		colors.customBackgroundColor = customOverlayBackgroundColor;
+	} else if ( isSubMenu && !! overlayBackgroundColor ) {
+		colors.backgroundColor = overlayBackgroundColor;
+	} else if ( !! customBackgroundColor ) {
+		colors.customBackgroundColor = customBackgroundColor;
+	} else if ( !! backgroundColor ) {
+		colors.backgroundColor = backgroundColor;
+	} else if ( !! style?.color?.background ) {
+		colors.customTextColor = style.color.background;
+	}
+
+	return colors;
+}
+
 export default function PageListItemEdit( { context, attributes } ) {
 	const { id, label, link, hasChildren } = attributes;
 	const isNavigationChild = 'showSubmenuIcon' in context;
 	const frontPageId = useFrontPageId();
+
+	const innerBlocksColors = getColors( context, true );
+
+	const blockProps = useBlockProps( {
+		className: classnames(
+			'wp-block-pages-list__item',
+			'wp-block-navigation__submenu-container',
+			{
+				'has-text-color': !! (
+					innerBlocksColors.textColor ||
+					innerBlocksColors.customTextColor
+				),
+				[ `has-${ innerBlocksColors.textColor }-color` ]:
+					!! innerBlocksColors.textColor,
+				'has-background': !! (
+					innerBlocksColors.backgroundColor ||
+					innerBlocksColors.customBackgroundColor
+				),
+				[ `has-${ innerBlocksColors.backgroundColor }-background-color` ]:
+					!! innerBlocksColors.backgroundColor,
+			}
+		),
+		style: {
+			color: innerBlocksColors.customTextColor,
+			backgroundColor: innerBlocksColors.customBackgroundColor,
+		},
+	} );
+
+	const innerBlocksProps = useInnerBlocksProps( blockProps );
+
 	return (
 		<li
 			key={ id }
@@ -84,9 +169,8 @@ export default function PageListItemEdit( { context, attributes } ) {
 							'wp-block-navigation__submenu-container':
 								isNavigationChild,
 						} ) }
-					>
-						<InnerBlocks />
-					</ul>
+						{ ...innerBlocksProps }
+					></ul>
 				</>
 			) }
 		</li>
diff --git a/packages/block-library/src/page-list/block.json b/packages/block-library/src/page-list/block.json
index e8ff316a9fb4f..4f4f45c4bb474 100644
--- a/packages/block-library/src/page-list/block.json
+++ b/packages/block-library/src/page-list/block.json
@@ -11,6 +11,10 @@
 		"parentPageID": {
 			"type": "integer",
 			"default": 0
+		},
+		"isNested": {
+			"type": "boolean",
+			"default": false
 		}
 	},
 	"usesContext": [
diff --git a/packages/block-library/src/page-list/edit.js b/packages/block-library/src/page-list/edit.js
index 7372191723f46..219822ed87944 100644
--- a/packages/block-library/src/page-list/edit.js
+++ b/packages/block-library/src/page-list/edit.js
@@ -25,7 +25,7 @@ import {
 	Button,
 } from '@wordpress/components';
 import { __, sprintf } from '@wordpress/i18n';
-import { useMemo, useState } from '@wordpress/element';
+import { useMemo, useState, useEffect } from '@wordpress/element';
 import { useEntityRecords } from '@wordpress/core-data';
 import { useSelect, useDispatch } from '@wordpress/data';
 
@@ -189,20 +189,33 @@ export default function PageListEdit( {
 
 	const { replaceBlock, selectBlock } = useDispatch( blockEditorStore );
 
-	const { parentNavBlockClientId } = useSelect( ( select ) => {
-		const { getSelectedBlockClientId, getBlockParentsByBlockName } =
-			select( blockEditorStore );
-
-		const _selectedBlockClientId = getSelectedBlockClientId();
+	const { parentNavBlockClientId, isNested } = useSelect(
+		( select ) => {
+			const { getSelectedBlockClientId, getBlockParentsByBlockName } =
+				select( blockEditorStore );
+
+			const _selectedBlockClientId = getSelectedBlockClientId();
+
+			return {
+				parentNavBlockClientId: getBlockParentsByBlockName(
+					_selectedBlockClientId,
+					'core/navigation',
+					true
+				)[ 0 ],
+				isNested:
+					getBlockParentsByBlockName(
+						clientId,
+						'core/navigation-submenu',
+						true
+					).length > 0,
+			};
+		},
+		[ clientId ]
+	);
 
-		return {
-			parentNavBlockClientId: getBlockParentsByBlockName(
-				_selectedBlockClientId,
-				'core/navigation',
-				true
-			)[ 0 ],
-		};
-	}, [] );
+	useEffect( () => {
+		setAttributes( { isNested } );
+	}, [ isNested ] );
 
 	return (
 		<>
diff --git a/packages/block-library/src/page-list/editor.scss b/packages/block-library/src/page-list/editor.scss
index 83a70bafd9485..4cda6018220d3 100644
--- a/packages/block-library/src/page-list/editor.scss
+++ b/packages/block-library/src/page-list/editor.scss
@@ -22,6 +22,10 @@
 	}
 }
 
+.wp-block-navigation .wp-block-navigation__submenu-container > .wp-block-page-list {
+	display: block; // This is needed to make sure the page list container is 100% wide, so that the children are correctly positioned.
+}
+
 // Make links unclickable in the editor.
 .wp-block-pages-list__item__link {
 	pointer-events: none;
diff --git a/packages/block-library/src/page-list/index.php b/packages/block-library/src/page-list/index.php
index 7944f6f3a84ad..3ae63047e2748 100644
--- a/packages/block-library/src/page-list/index.php
+++ b/packages/block-library/src/page-list/index.php
@@ -139,13 +139,14 @@ function block_core_page_list_build_css_font_sizes( $context ) {
  * @param boolean $show_submenu_icons Whether to show submenu indicator icons.
  * @param boolean $is_navigation_child If block is a child of Navigation block.
  * @param array   $nested_pages The array of nested pages.
+ * @param boolean $is_nested Whether the submenu is nested or not.
  * @param array   $active_page_ancestor_ids An array of ancestor ids for active page.
  * @param array   $colors Color information for overlay styles.
  * @param integer $depth The nesting depth.
  *
  * @return string List markup.
  */
-function block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $nested_pages, $active_page_ancestor_ids = array(), $colors = array(), $depth = 0 ) {
+function block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $nested_pages, $is_nested, $active_page_ancestor_ids = array(), $colors = array(), $depth = 0 ) {
 	if ( empty( $nested_pages ) ) {
 		return;
 	}
@@ -173,7 +174,7 @@ function block_core_page_list_render_nested_page_list( $open_submenus_on_click,
 		$navigation_child_content_class = $is_navigation_child ? ' wp-block-navigation-item__content' : '';
 
 		// If this is the first level of submenus, include the overlay colors.
-		if ( 1 === $depth && isset( $colors['overlay_css_classes'], $colors['overlay_inline_styles'] ) ) {
+		if ( ( ( 0 < $depth && ! $is_nested ) || $is_nested ) && isset( $colors['overlay_css_classes'], $colors['overlay_inline_styles'] ) ) {
 			$css_class .= ' ' . trim( implode( ' ', $colors['overlay_css_classes'] ) );
 			if ( '' !== $colors['overlay_inline_styles'] ) {
 				$style_attribute = sprintf( ' style="%s"', esc_attr( $colors['overlay_inline_styles'] ) );
@@ -212,7 +213,7 @@ function block_core_page_list_render_nested_page_list( $open_submenus_on_click,
 			if ( $is_navigation_child ) {
 				$markup .= ' wp-block-navigation__submenu-container';
 			}
-			$markup .= '">' . block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $page['children'], $active_page_ancestor_ids, $colors, $depth + 1 ) . '</ul>';
+			$markup .= '">' . block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $page['children'], $is_nested, $active_page_ancestor_ids, $colors, $depth + 1 ) . '</ul>';
 		}
 		$markup .= '</li>';
 	}
@@ -253,6 +254,7 @@ function render_block_core_page_list( $attributes, $content, $block ) {
 	++$block_id;
 
 	$parent_page_id = $attributes['parentPageID'];
+	$is_nested      = $attributes['isNested'];
 
 	$all_pages = get_pages(
 		array(
@@ -321,9 +323,9 @@ function render_block_core_page_list( $attributes, $content, $block ) {
 
 	$show_submenu_icons = array_key_exists( 'showSubmenuIcon', $block->context ) ? $block->context['showSubmenuIcon'] : false;
 
-	$wrapper_markup = '<ul %1$s>%2$s</ul>';
+	$wrapper_markup = $is_nested ? '%2$s' : '<ul %1$s>%2$s</ul>';
 
-	$items_markup = block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $nested_pages, $active_page_ancestor_ids, $colors );
+	$items_markup = block_core_page_list_render_nested_page_list( $open_submenus_on_click, $show_submenu_icons, $is_navigation_child, $nested_pages, $is_nested, $active_page_ancestor_ids, $colors );
 
 	$wrapper_attributes = get_block_wrapper_attributes(
 		array(
diff --git a/test/integration/fixtures/blocks/core__page-list.json b/test/integration/fixtures/blocks/core__page-list.json
index b1992a437b884..2552d5e093c77 100644
--- a/test/integration/fixtures/blocks/core__page-list.json
+++ b/test/integration/fixtures/blocks/core__page-list.json
@@ -3,7 +3,8 @@
 		"name": "core/page-list",
 		"isValid": true,
 		"attributes": {
-			"parentPageID": 0
+			"parentPageID": 0,
+			"isNested": false
 		},
 		"innerBlocks": []
 	}