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rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-colorblind-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-colorblind-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-high-contrast-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-high-contrast-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-high-contrast-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-high-contrast-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-tritanopia-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-tritanopia-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Teal-light-tritanopia-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Teal-light-tritanopia-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-colorblind-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-colorblind-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-colorblind-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-colorblind-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-dimmed-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-dimmed-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-dimmed-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-dimmed-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-high-contrast-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-high-contrast-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-high-contrast-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-high-contrast-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-tritanopia-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-tritanopia-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-dark-tritanopia-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-dark-tritanopia-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-colorblind-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-colorblind-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-colorblind-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-colorblind-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-high-contrast-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-high-contrast-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-high-contrast-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-high-contrast-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-linux.png
diff --git a/.playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-tritanopia-linux.png b/.playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-tritanopia-linux.png
similarity index 100%
rename from .playwright/snapshots/components/drafts/Label.test.ts-snapshots/Label-Yellow-light-tritanopia-linux.png
rename to .playwright/snapshots/components/drafts/IssueLabel.test.ts-snapshots/IssueLabel-Yellow-light-tritanopia-linux.png
diff --git a/e2e/components/drafts/Label.test.ts b/e2e/components/drafts/IssueLabel.test.ts
similarity index 59%
rename from e2e/components/drafts/Label.test.ts
rename to e2e/components/drafts/IssueLabel.test.ts
index 4963bf64005..010e1d1d073 100644
--- a/e2e/components/drafts/Label.test.ts
+++ b/e2e/components/drafts/IssueLabel.test.ts
@@ -5,98 +5,98 @@ import {themes} from '../../test-helpers/themes'
 const variants = [
   {
     title: 'Default',
-    id: 'drafts-components-label--default',
+    id: 'drafts-components-issuelabel--default',
   },
   {
     title: 'Auburn',
-    id: 'drafts-components-label-features--auburn',
+    id: 'drafts-components-issuelabel-features--auburn',
   },
   {
     title: 'Blue',
-    id: 'drafts-components-label-features--blue',
+    id: 'drafts-components-issuelabel-features--blue',
   },
   {
     title: 'Brown',
-    id: 'drafts-components-label-features--brown',
+    id: 'drafts-components-issuelabel-features--brown',
   },
   {
     title: 'Coral',
-    id: 'drafts-components-label-features--coral',
+    id: 'drafts-components-issuelabel-features--coral',
   },
   {
     title: 'Cyan',
-    id: 'drafts-components-label-features--cyan',
+    id: 'drafts-components-issuelabel-features--cyan',
   },
   {
     title: 'Gray',
-    id: 'drafts-components-label-features--gray',
+    id: 'drafts-components-issuelabel-features--gray',
   },
   {
     title: 'Green',
-    id: 'drafts-components-label-features--green',
+    id: 'drafts-components-issuelabel-features--green',
   },
   {
     title: 'Indigo',
-    id: 'drafts-components-label-features--indigo',
+    id: 'drafts-components-issuelabel-features--indigo',
   },
   {
     title: 'Lemon',
-    id: 'drafts-components-label-features--lemon',
+    id: 'drafts-components-issuelabel-features--lemon',
   },
   {
     title: 'Lime',
-    id: 'drafts-components-label-features--lime',
+    id: 'drafts-components-issuelabel-features--lime',
   },
   {
     title: 'Olive',
-    id: 'drafts-components-label-features--olive',
+    id: 'drafts-components-issuelabel-features--olive',
   },
   {
     title: 'Orange',
-    id: 'drafts-components-label-features--orange',
+    id: 'drafts-components-issuelabel-features--orange',
   },
   {
     title: 'Pine',
-    id: 'drafts-components-label-features--pine',
+    id: 'drafts-components-issuelabel-features--pine',
   },
   {
     title: 'Pink',
-    id: 'drafts-components-label-features--pink',
+    id: 'drafts-components-issuelabel-features--pink',
   },
   {
     title: 'Plum',
-    id: 'drafts-components-label-features--plum',
+    id: 'drafts-components-issuelabel-features--plum',
   },
   {
     title: 'Purple',
-    id: 'drafts-components-label-features--purple',
+    id: 'drafts-components-issuelabel-features--purple',
   },
   {
     title: 'Red',
-    id: 'drafts-components-label-features--red',
+    id: 'drafts-components-issuelabel-features--red',
   },
   {
     title: 'Teal',
-    id: 'drafts-components-label-features--teal',
+    id: 'drafts-components-issuelabel-features--teal',
   },
   {
     title: 'Yellow',
-    id: 'drafts-components-label-features--yellow',
+    id: 'drafts-components-issuelabel-features--yellow',
   },
 ] as const
 
 const sizes = [
   {
     title: 'Size: Large',
-    id: 'drafts-components-label-features--size-large',
+    id: 'drafts-components-issuelabel-features--size-large',
   },
   {
     title: 'Size: Small',
-    id: 'drafts-components-label-features--size-small',
+    id: 'drafts-components-issuelabel-features--size-small',
   },
 ] as const
 
-test.describe('Label', () => {
+test.describe('IssueLabel', () => {
   for (const story of variants) {
     test.describe(story.title, () => {
       for (const theme of themes) {
@@ -115,7 +115,7 @@ test.describe('Label', () => {
             })
 
             // Default state
-            expect(await page.screenshot()).toMatchSnapshot(`Label.${story.title}.${theme}.png`)
+            expect(await page.screenshot()).toMatchSnapshot(`IssueLabel.${story.title}.${theme}.png`)
           })
 
           test('axe @aat', async ({page}) => {
@@ -145,7 +145,7 @@ test.describe('Label', () => {
         })
 
         // Default state
-        expect(await page.screenshot()).toMatchSnapshot(`Label.${story.title}.png`)
+        expect(await page.screenshot()).toMatchSnapshot(`IssueLabel.${story.title}.png`)
       })
 
       test('axe @aat', async ({page}) => {
diff --git a/package-lock.json b/package-lock.json
index c09139429f6..a1b08482a5e 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -36281,6 +36281,11 @@
       "version": "2.8.9",
       "license": "ISC"
     },
+    "node_modules/hsluv": {
+      "version": "1.0.1",
+      "resolved": "https://registry.npmjs.org/hsluv/-/hsluv-1.0.1.tgz",
+      "integrity": "sha512-zCaFTiDqBLQjCCFBu0qg7z9ASYPd+Bxx2GDCVZJsnehjK80S+jByqhuFz0pCd2Aw3FSKr18AWbRlwnKR0YdizQ=="
+    },
     "node_modules/html-dom-parser": {
       "version": "1.2.0",
       "resolved": "https://registry.npmjs.org/html-dom-parser/-/html-dom-parser-1.2.0.tgz",
@@ -62162,6 +62167,7 @@
         "focus-visible": "^5.2.0",
         "fzy.js": "^0.4.1",
         "history": "^5.0.0",
+        "hsluv": "1.0.1",
         "lodash.isempty": "^4.4.0",
         "lodash.isobject": "^3.0.2",
         "react-intersection-observer": "^9.4.3",
diff --git a/packages/react/package.json b/packages/react/package.json
index 3ab477266ac..5a5324623f3 100644
--- a/packages/react/package.json
+++ b/packages/react/package.json
@@ -109,6 +109,7 @@
     "focus-visible": "^5.2.0",
     "fzy.js": "^0.4.1",
     "history": "^5.0.0",
+    "hsluv": "1.0.1",
     "lodash.isempty": "^4.4.0",
     "lodash.isobject": "^3.0.2",
     "react-intersection-observer": "^9.4.3",
diff --git a/packages/react/src/__tests__/__snapshots__/exports.test.ts.snap b/packages/react/src/__tests__/__snapshots__/exports.test.ts.snap
index c29dc006f94..bedfd5008c0 100644
--- a/packages/react/src/__tests__/__snapshots__/exports.test.ts.snap
+++ b/packages/react/src/__tests__/__snapshots__/exports.test.ts.snap
@@ -268,6 +268,8 @@ exports[`@primer/react/drafts should not update exports without a semver change
   "InlineAutocomplete",
   "type InlineAutocompleteProps",
   "type InteractiveMarkdownViewerProps",
+  "IssueLabel",
+  "type IssueLabelProps",
   "MarkdownEditor",
   "type MarkdownEditorHandle",
   "type MarkdownEditorProps",
@@ -366,6 +368,8 @@ exports[`@primer/react/experimental should not update exports without a semver c
   "InlineAutocomplete",
   "type InlineAutocompleteProps",
   "type InteractiveMarkdownViewerProps",
+  "IssueLabel",
+  "type IssueLabelProps",
   "MarkdownEditor",
   "type MarkdownEditorHandle",
   "type MarkdownEditorProps",
diff --git a/packages/react/src/drafts/IssueLabel/IssueLabel.features.stories.tsx b/packages/react/src/drafts/IssueLabel/IssueLabel.features.stories.tsx
index 9bb03c7c530..07faa9ee6c4 100644
--- a/packages/react/src/drafts/IssueLabel/IssueLabel.features.stories.tsx
+++ b/packages/react/src/drafts/IssueLabel/IssueLabel.features.stories.tsx
@@ -1,6 +1,7 @@
 import React from 'react'
 import {IssueLabel} from '../IssueLabel'
 import type {Meta} from '@storybook/react'
+import type {Hex} from './IssueLabel'
 
 const meta = {
   title: 'Drafts/Components/IssueLabel/Features',
@@ -51,12 +52,12 @@ export const SizeLarge = () => <IssueLabel size="large">Issue label</IssueLabel>
 
 export const SizeSmall = () => <IssueLabel size="small">Issue label</IssueLabel>
 
-export const Hex = hex => <IssueLabel fillColor={hex}>Issue label</IssueLabel>
-Hex.args = {
+export const HexColor = (hex: Hex) => <IssueLabel fillColor={hex}>Issue label</IssueLabel>
+HexColor.args = {
   hex: '#59B200',
   variant: undefined,
 }
-Hex.argTypes = {
+HexColor.argTypes = {
   hex: {control: {type: 'color'}},
   variant: {control: {disable: true}},
 }
diff --git a/packages/react/src/drafts/IssueLabel/IssueLabel.stories.tsx b/packages/react/src/drafts/IssueLabel/IssueLabel.stories.tsx
index 6ce1016ffef..d17c0bc639f 100644
--- a/packages/react/src/drafts/IssueLabel/IssueLabel.stories.tsx
+++ b/packages/react/src/drafts/IssueLabel/IssueLabel.stories.tsx
@@ -3,7 +3,7 @@ import {IssueLabel} from '../IssueLabel'
 import type {Meta, StoryObj} from '@storybook/react'
 
 const meta = {
-  title: 'Drafts/Components/Label',
+  title: 'Drafts/Components/IssueLabel',
   component: IssueLabel,
 } satisfies Meta<typeof IssueLabel>
 
@@ -15,6 +15,10 @@ export const Playground: StoryObj<typeof IssueLabel> = {
   render: args => <IssueLabel {...args}>Issue label</IssueLabel>,
   args: {},
   argTypes: {
+    fillColor: {
+      hex: undefined,
+      control: {type: 'color', presetColors: ['red', 'green', 'blue', 'brown', 'black', 'white', 'salmon', 'orange']},
+    },
     size: {
       control: 'select',
       option: ['small', 'large'],
diff --git a/packages/react/src/drafts/IssueLabel/IssueLabel.tsx b/packages/react/src/drafts/IssueLabel/IssueLabel.tsx
index fd88053cb69..4d44b7834e2 100644
--- a/packages/react/src/drafts/IssueLabel/IssueLabel.tsx
+++ b/packages/react/src/drafts/IssueLabel/IssueLabel.tsx
@@ -1,6 +1,9 @@
 import React from 'react'
 import styled from 'styled-components'
 import {get} from '../../constants'
+import {getColorsFromHex} from './getColorFromHex'
+import {useTheme} from '../../ThemeProvider'
+export type Hex = `#${string}`
 
 type LabelColorVariant =
   | 'pink'
@@ -29,7 +32,7 @@ export interface IssueLabelProps extends React.PropsWithChildren {
   /**
    *
    */
-  fillColor?: string
+  fillColor?: Hex
 
   /**
    *
@@ -43,8 +46,21 @@ export interface IssueLabelProps extends React.PropsWithChildren {
 }
 
 export function IssueLabel({children, fillColor, size = 'small', variant = 'gray', ...rest}: IssueLabelProps) {
+  const {resolvedColorScheme} = useTheme()
+  const mode = resolvedColorScheme?.startsWith('dark') ? 'dark' : 'light'
+  // TODO: get the bgColor, getting it from theme.colorScheme seems a bit sketchy
+  const bgColors: Record<string, Hex> = {
+    light: '#ffffff',
+    dark: '#0d1117',
+  }
+
   return (
-    <StyledLabel {...rest} data-size={size} data-variant={fillColor ? undefined : variant}>
+    <StyledLabel
+      {...rest}
+      data-size={size}
+      data-variant={fillColor ? undefined : variant}
+      style={fillColor ? getColorsFromHex(fillColor, resolvedColorScheme, bgColors[mode]) : undefined}
+    >
       {children}
     </StyledLabel>
   )
diff --git a/packages/react/src/drafts/IssueLabel/getColorFromHex.ts b/packages/react/src/drafts/IssueLabel/getColorFromHex.ts
new file mode 100644
index 00000000000..81aed0f5858
--- /dev/null
+++ b/packages/react/src/drafts/IssueLabel/getColorFromHex.ts
@@ -0,0 +1,143 @@
+import {getContrast} from 'color2k'
+import {Hsluv} from 'hsluv'
+import type {Hex} from './IssueLabel'
+
+/**
+ * transforms a hex color provided by the user into a color object with background and text colors
+ * @param colorHex — the hex color provided by the user
+ * @param colorScheme — the color scheme the user has currently set
+ * @param bgColor — the background color from the selected theme, needed to calc the contrast for the colors
+ * @returns
+ */
+export const getColorsFromHex = (
+  colorHex: Hex,
+  colorScheme = 'light',
+  bgColor: Hex,
+): React.CSSProperties | undefined => {
+  // start values for light mode
+  let bgLightness = 96
+  let lightnessIncrement: 1 | -1 = -1
+  let ratio = 4.5
+  // start values for dark mode
+  if (colorScheme.startsWith('dark')) {
+    bgLightness = 16
+    lightnessIncrement = 1
+    ratio = 5.5
+  }
+
+  // get hue and saturation value from hex color
+  // eslint-disable-next-line prefer-const
+  let {h, s} = hexToHsluv(colorHex)
+
+  // avoid intense bright colors
+  // Hue range: 58 - 198
+  // 58 marks the transition from yellow to yellow-green
+  // 198 makes the tranisiton from cyan to blue
+  // yellow, yellow-green, green, cyan, blue tend to be bright and intense
+  // Setting the hue range of 58 and 198 helps avoid bright colors
+  // saturation: represents the intensity of a color, measured as a percentage from 0 to 100. Capping at 70% to avoid intense bright colors
+  if (h >= 58 && h <= 198 && s > 70) {
+    s = 70
+  }
+  /**
+   * creating a background color from the provided hex color
+   */
+  const {colorHex: backgroundColor, lightness: currentBgLightness} = getColorWithContrast(
+    hsluvToHex({h, s, l: bgLightness}) as Hex,
+    bgColor,
+    1.2,
+    lightnessIncrement,
+  )
+
+  // avoid intense bright colors
+  if (h >= 58 && h <= 316 && s > 80) {
+    s = 80
+  }
+  /**
+   * creating a text color from with a contrast ratio of at least 4.5 to the generated background color
+   */
+  const {colorHex: textColor} = getColorWithContrast(
+    hsluvToHex({h, s, l: 50}) as Hex,
+    backgroundColor,
+    ratio,
+    lightnessIncrement as 1 | -1,
+  )
+
+  return {
+    '--label-bgColor-rest': backgroundColor,
+    '--label-bgColor-hover': hsluvToHex({h, s, l: currentBgLightness + 4 * lightnessIncrement}),
+    '--label-bgColor-active': hsluvToHex({h, s, l: currentBgLightness + 8 * lightnessIncrement}),
+    '--label-fgColor': textColor,
+    '--label-fgColor-hover': textColor,
+    '--label-fgColor-active': textColor,
+  } as React.CSSProperties
+}
+/**
+ * Changes the lightness of a hex color until the contrast ratio is reached and returns the new hex color
+ * @param colorHex — initial hex color
+ * @param bgHex — color to check the contrast against
+ * @param contrastRatio — the contrast ratio to reach
+ * @param increment — the direction to change the lightness depending on the color scheme
+ * @returns the new hex color
+ */
+const getColorWithContrast = (
+  fgColor: Hex,
+  bgColor: Hex,
+  contrastRatio: number,
+  increment: 1 | -1,
+): {colorHex: Hex; lightness: number} => {
+  const hsluv = hexToHsluv(fgColor)
+  let color: string = fgColor
+
+  // change lightness until contrast is reached
+  while (getContrast(color, bgColor) < contrastRatio && hsluv.l > 0 && hsluv.l < 100) {
+    hsluv.l += increment
+    color = hsluvToHex(hsluv)
+  }
+
+  return {
+    colorHex: color as Hex,
+    lightness: hsluv.l,
+  }
+}
+
+/**
+ * Takes a hex value and returns the hue, saturation and lightness for HSLuv as an object
+ * @param hex user provided hex string
+ * @returns an object with the hue, saturation and lightness values
+ */
+const hexToHsluv = (
+  hex: Hex,
+): {
+  h: number
+  s: number
+  l: number
+} => {
+  // convert hex to hsluv
+  const color = new Hsluv()
+  color.hex = hex
+  color.hexToHsluv()
+  // extract h, s and l values
+  const {hsluv_h: h, hsluv_s: s, hsluv_l: l} = color
+  // return h, s, l as an object
+  return {h, s, l}
+}
+/**
+ * Takes an object with hue, saturation and lightness values and returns a hex string
+ * @param hex user provided hex string
+ * @returns an object with the hue, saturation and lightness values
+ */
+const hsluvToHex = ({h, s, l}: {h: number; s: number; l: number}): string => {
+  // create a new HSLuv color object and assign values
+  const color = new Hsluv()
+  // eslint-disable-next-line camelcase
+  color.hsluv_h = h
+  // eslint-disable-next-line camelcase
+  color.hsluv_s = s
+  // eslint-disable-next-line camelcase
+  color.hsluv_l = l
+  // convert hsluv to hex
+  color.hsluvToHex()
+  // return hex string
+  return color.hex
+}