diff --git a/src/ActionList/ActionListContainerContext.tsx b/src/ActionList/ActionListContainerContext.tsx
index bf5c797bff0..594b15ea4e9 100644
--- a/src/ActionList/ActionListContainerContext.tsx
+++ b/src/ActionList/ActionListContainerContext.tsx
@@ -13,6 +13,7 @@ type ContextProps = {
   // to be more specific here, this is as good as (...args: any[]) => unknown
   // eslint-disable-next-line @typescript-eslint/ban-types
   afterSelect?: Function
+  enableFocusZone?: boolean
 }
 
 export const ActionListContainerContext = React.createContext<ContextProps>({})
diff --git a/src/ActionList/List.tsx b/src/ActionList/List.tsx
index ba2178d3efa..ea0156ac433 100644
--- a/src/ActionList/List.tsx
+++ b/src/ActionList/List.tsx
@@ -8,6 +8,8 @@ import {defaultSxProp} from '../utils/defaultSxProp'
 import {useSlots} from '../hooks/useSlots'
 import {Heading} from './Heading'
 import {useId} from '../hooks/useId'
+import {useFocusZone, FocusKeys} from '../hooks/useFocusZone'
+import {useProvidedRefOrCreate} from '../hooks'
 
 export type ActionListProps = React.PropsWithChildren<{
   /**
@@ -59,10 +61,18 @@ export const List = React.forwardRef<HTMLUListElement, ActionListProps>(
       listRole,
       listLabelledBy,
       selectionVariant: containerSelectionVariant, // TODO: Remove after DropdownMenu2 deprecation
+      enableFocusZone,
     } = React.useContext(ActionListContainerContext)
 
     const ariaLabelledBy = slots.heading ? slots.heading.props.id ?? headingId : listLabelledBy
 
+    const listRef = useProvidedRefOrCreate(forwardedRef as React.RefObject<HTMLUListElement>)
+    useFocusZone({
+      disabled: !enableFocusZone,
+      containerRef: listRef,
+      bindKeys: FocusKeys.ArrowVertical | FocusKeys.HomeAndEnd | FocusKeys.PageUpDown,
+    })
+
     return (
       <ListContext.Provider
         value={{
@@ -79,7 +89,7 @@ export const List = React.forwardRef<HTMLUListElement, ActionListProps>(
           role={role || listRole}
           aria-labelledby={ariaLabelledBy}
           {...props}
-          ref={forwardedRef}
+          ref={listRef}
         >
           {childrenWithoutSlots}
         </ListBox>
diff --git a/src/drafts/SelectPanel2/SelectPanel.tsx b/src/drafts/SelectPanel2/SelectPanel.tsx
index 82e122a4181..9350d007131 100644
--- a/src/drafts/SelectPanel2/SelectPanel.tsx
+++ b/src/drafts/SelectPanel2/SelectPanel.tsx
@@ -1,6 +1,5 @@
 import React from 'react'
 import {SearchIcon, XCircleFillIcon, XIcon, FilterRemoveIcon, AlertIcon} from '@primer/octicons-react'
-import {FocusKeys} from '@primer/behaviors'
 
 import {
   Button,
@@ -23,7 +22,6 @@ import {
 import {ActionListContainerContext} from '../../ActionList/ActionListContainerContext'
 import {useSlots} from '../../hooks/useSlots'
 import {useProvidedRefOrCreate, useId, useAnchoredPosition} from '../../hooks'
-import {useFocusZone} from '../../hooks/useFocusZone'
 import {StyledOverlay, OverlayProps} from '../../Overlay/Overlay'
 import InputLabel from '../../internal/components/InputLabel'
 import {invariant} from '../../utils/invariant'
@@ -112,7 +110,7 @@ const Panel: React.FC<SelectPanelProps> = ({
       Anchor = React.cloneElement(child, {
         // @ts-ignore TODO
         ref: anchorRef,
-        onClick: onAnchorClick,
+        onClick: child.props.onClick || onAnchorClick,
         'aria-haspopup': true,
         'aria-expanded': internalOpen,
       })
@@ -152,15 +150,6 @@ const Panel: React.FC<SelectPanelProps> = ({
   const panelId = useId(id)
   const [slots, childrenInBody] = useSlots(contents, {header: SelectPanelHeader, footer: SelectPanelFooter})
 
-  /* Arrow keys navigation for list items */
-  const {containerRef: listContainerRef} = useFocusZone(
-    {
-      bindKeys: FocusKeys.ArrowVertical | FocusKeys.HomeAndEnd | FocusKeys.PageUpDown,
-      focusableElementFilter: element => element.tagName === 'LI',
-    },
-    [internalOpen],
-  )
-
   /* Dialog */
   const dialogRef = React.useRef<HTMLDialogElement>(null)
 
@@ -276,7 +265,6 @@ const Panel: React.FC<SelectPanelProps> = ({
 
             <Box
               as="div"
-              ref={listContainerRef as React.RefObject<HTMLDivElement>}
               sx={{
                 flexShrink: 1,
                 flexGrow: 1,
@@ -292,6 +280,7 @@ const Panel: React.FC<SelectPanelProps> = ({
                 value={{
                   container: 'SelectPanel',
                   listRole: 'listbox',
+                  enableFocusZone: true, // Arrow keys navigation for list items
                   selectionAttribute: 'aria-selected',
                   selectionVariant: selectionVariant === 'instant' ? 'single' : selectionVariant,
                   afterSelect: internalAfterSelect,
@@ -429,6 +418,7 @@ const SelectPanelFooter = ({...props}) => {
     <FooterContext.Provider value={true}>
       <Box
         sx={{
+          flexShrink: 0,
           display: 'flex',
           justifyContent: 'space-between',
           alignItems: 'center',
@@ -556,7 +546,7 @@ const SelectPanelMessage: React.FC<SelectPanelMessageProps> = ({
           flexGrow: 1,
           height: '100%',
           gap: 1,
-          paddingX: 4,
+          paddingX: 3,
           textAlign: 'center',
           a: {color: 'inherit', textDecoration: 'underline'},
         }}
@@ -565,7 +555,11 @@ const SelectPanelMessage: React.FC<SelectPanelMessageProps> = ({
           <Octicon icon={AlertIcon} sx={{color: variant === 'error' ? 'danger.fg' : 'attention.fg', marginBottom: 2}} />
         ) : null}
         <Text sx={{fontSize: 1, fontWeight: 'semibold'}}>{title}</Text>
-        <Text sx={{fontSize: 1, color: 'fg.muted'}}>{children}</Text>
+        <Text
+          sx={{fontSize: 1, color: 'fg.muted', display: 'flex', flexDirection: 'column', gap: 2, alignItems: 'center'}}
+        >
+          {children}
+        </Text>
       </Box>
     )
   } else {
diff --git a/src/drafts/SelectPanel2/stories/SelectPanel.examples.stories.tsx b/src/drafts/SelectPanel2/stories/SelectPanel.examples.stories.tsx
index 3eaf75e9060..11564313574 100644
--- a/src/drafts/SelectPanel2/stories/SelectPanel.examples.stories.tsx
+++ b/src/drafts/SelectPanel2/stories/SelectPanel.examples.stories.tsx
@@ -1,7 +1,15 @@
-import React from 'react'
+import React, {FormEvent} from 'react'
 import {SelectPanel} from '../SelectPanel'
-import {ActionList, ActionMenu, Avatar, Box, Button, Text} from '../../../index'
-import {ArrowRightIcon, EyeIcon, GitBranchIcon, TriangleDownIcon, GearIcon} from '@primer/octicons-react'
+import {ActionList, ActionMenu, Avatar, Box, Button, Flash, FormControl, Text, TextInput} from '../../../index'
+import {Dialog} from '../../../drafts'
+import {
+  ArrowRightIcon,
+  EyeIcon,
+  GitBranchIcon,
+  TriangleDownIcon,
+  GearIcon,
+  PlusCircleIcon,
+} from '@primer/octicons-react'
 import data from './mock-data'
 
 export default {
@@ -640,6 +648,219 @@ export const ShortSelectPanel = () => {
   )
 }
 
+export const CreateNewRow = () => {
+  const initialSelectedLabels = data.issue.labelIds // mock initial state: has selected labels
+  const [selectedLabelIds, setSelectedLabelIds] = React.useState<string[]>(initialSelectedLabels)
+
+  /* Selection */
+  const onLabelSelect = (labelId: string) => {
+    if (!selectedLabelIds.includes(labelId)) setSelectedLabelIds([...selectedLabelIds, labelId])
+    else setSelectedLabelIds(selectedLabelIds.filter(id => id !== labelId))
+  }
+  const onClearSelection = () => {
+    setSelectedLabelIds([])
+  }
+
+  const onSubmit = () => {
+    data.issue.labelIds = selectedLabelIds // pretending to persist changes
+  }
+
+  /* Filtering */
+  const [filteredLabels, setFilteredLabels] = React.useState(data.labels)
+  const [query, setQuery] = React.useState('')
+
+  const onSearchInputChange: React.ChangeEventHandler<HTMLInputElement> = event => {
+    const query = event.currentTarget.value
+    setQuery(query)
+
+    if (query === '') setFilteredLabels(data.labels)
+    else {
+      setFilteredLabels(
+        data.labels
+          .map(label => {
+            if (label.name.toLowerCase().startsWith(query)) return {priority: 1, label}
+            else if (label.name.toLowerCase().includes(query)) return {priority: 2, label}
+            else if (label.description?.toLowerCase().includes(query)) return {priority: 3, label}
+            else return {priority: -1, label}
+          })
+          .filter(result => result.priority > 0)
+          .map(result => result.label),
+      )
+    }
+  }
+
+  const sortingFn = (itemA: {id: string}, itemB: {id: string}) => {
+    const initialSelectedIds = data.issue.labelIds
+    if (initialSelectedIds.includes(itemA.id) && initialSelectedIds.includes(itemB.id)) return 1
+    else if (initialSelectedIds.includes(itemA.id)) return -1
+    else if (initialSelectedIds.includes(itemB.id)) return 1
+    else return 1
+  }
+
+  const itemsToShow = query ? filteredLabels : data.labels.sort(sortingFn)
+
+  /* 
+    Controlled state + Create new label Dialog 
+    We only have to do this until https://github.com/primer/react/pull/3840 is merged
+  */
+  const [panelOpen, setPanelOpen] = React.useState(false)
+  const [newLabelDialogOpen, setNewLabelDialogOpen] = React.useState(false)
+
+  const openCreateLabelDialog = () => {
+    setPanelOpen(false)
+    setNewLabelDialogOpen(true)
+  }
+
+  const onNewLabelDialogSave = (id: string) => {
+    setNewLabelDialogOpen(false)
+
+    setQuery('') // clear search input
+    onLabelSelect(id) // select newly created label
+
+    setPanelOpen(true)
+
+    // focus newly created label once it renders
+    window.requestAnimationFrame(() => {
+      const newLabelElement = document.querySelector(`[data-id=${id}]`) as HTMLLIElement
+      newLabelElement.focus()
+    })
+  }
+
+  return (
+    <>
+      <h1>Create new item from panel</h1>
+      <Flash sx={{marginBottom: 2}} variant="warning">
+        Note this example is not yet ready, do not copy it. It is blocked by{' '}
+        <a href="https://github.com/primer/react/pull/3840">primer/react/pull/3840</a>
+      </Flash>
+
+      <SelectPanel
+        title="Select labels"
+        open={panelOpen}
+        onSubmit={onSubmit}
+        onCancel={() => setPanelOpen(false)}
+        onClearSelection={onClearSelection}
+      >
+        <SelectPanel.Button onClick={() => setPanelOpen(true)}>Assign label</SelectPanel.Button>
+
+        <SelectPanel.Header>
+          <SelectPanel.SearchInput value={query} onChange={onSearchInputChange} />
+        </SelectPanel.Header>
+
+        {itemsToShow.length === 0 ? (
+          <SelectPanel.Message variant="empty" title={`No labels found for "${query}"`}>
+            <Text>Select the button below to create this label</Text>
+            <Button onClick={openCreateLabelDialog}>Create &quot;{query}&quot;</Button>
+          </SelectPanel.Message>
+        ) : (
+          <>
+            <ActionList>
+              {itemsToShow.map(label => (
+                <ActionList.Item
+                  key={label.id}
+                  onSelect={() => onLabelSelect(label.id)}
+                  selected={selectedLabelIds.includes(label.id)}
+                  data-id={label.id}
+                >
+                  <ActionList.LeadingVisual>
+                    <Box
+                      sx={{width: 14, height: 14, borderRadius: '100%'}}
+                      style={{backgroundColor: `#${label.color}`}}
+                    />
+                  </ActionList.LeadingVisual>
+                  {label.name}
+                  <ActionList.Description variant="block">{label.description}</ActionList.Description>
+                </ActionList.Item>
+              ))}
+            </ActionList>
+            {query && (
+              <Box sx={{padding: 2, borderTop: '1px solid', borderColor: 'border.default', flexShrink: 0}}>
+                <Button
+                  variant="invisible"
+                  leadingVisual={PlusCircleIcon}
+                  block
+                  alignContent="start"
+                  sx={{'[data-component=text]': {fontWeight: 'normal'}}}
+                  onClick={openCreateLabelDialog}
+                >
+                  Create new label &quot;{query}&quot;...
+                </Button>
+              </Box>
+            )}
+          </>
+        )}
+
+        <SelectPanel.Footer>
+          <SelectPanel.SecondaryAction variant="button">Edit labels</SelectPanel.SecondaryAction>
+        </SelectPanel.Footer>
+      </SelectPanel>
+
+      {newLabelDialogOpen && (
+        <CreateNewLabelDialog
+          initialValue={query}
+          onSave={onNewLabelDialogSave}
+          onCancel={() => setNewLabelDialogOpen(false)}
+        />
+      )}
+    </>
+  )
+}
+
+const CreateNewLabelDialog = ({
+  initialValue,
+  onSave,
+  onCancel,
+}: {
+  initialValue: string
+  onSave: (id: string) => void
+  onCancel: () => void
+}) => {
+  const formSubmitRef = React.useRef<HTMLButtonElement>(null)
+
+  const onSubmit = (event: FormEvent<HTMLFormElement>) => {
+    event.preventDefault()
+
+    const formData = new FormData(event.target as HTMLFormElement)
+    const {name, color, description} = Object.fromEntries(formData) as Record<string, string>
+
+    // pretending to persist changes
+    const id = Math.random().toString(26).slice(6)
+    data.labels.unshift({id, name, color, description})
+    onSave(id)
+  }
+
+  return (
+    <Dialog
+      title="Create new Label"
+      onClose={onCancel}
+      width="medium"
+      footerButtons={[
+        {buttonType: 'default', content: 'Cancel', onClick: onCancel},
+        {type: 'submit', buttonType: 'primary', content: 'Save', onClick: () => formSubmitRef.current?.click()},
+      ]}
+    >
+      <Flash sx={{marginBottom: 2}} variant="warning">
+        Note this Dialog is not accessible. Do not copy this.
+      </Flash>
+      <form onSubmit={onSubmit}>
+        <FormControl sx={{marginBottom: 2}}>
+          <FormControl.Label>Name</FormControl.Label>
+          <TextInput name="name" block defaultValue={initialValue} autoFocus />
+        </FormControl>
+        <FormControl sx={{marginBottom: 2}}>
+          <FormControl.Label>Color</FormControl.Label>
+          <TextInput name="color" block defaultValue="fae17d" leadingVisual="#" />
+        </FormControl>
+        <FormControl>
+          <FormControl.Label>Description</FormControl.Label>
+          <TextInput name="description" block placeholder="Good first issues" />
+        </FormControl>
+        <button type="submit" hidden ref={formSubmitRef}></button>
+      </form>
+    </Dialog>
+  )
+}
+
 // ----- Suspense implementation details ----
 
 const cache = new Map()
diff --git a/src/drafts/SelectPanel2/stories/mock-data.ts b/src/drafts/SelectPanel2/stories/mock-data.ts
index 75f86fd3c77..e10ad1f868d 100644
--- a/src/drafts/SelectPanel2/stories/mock-data.ts
+++ b/src/drafts/SelectPanel2/stories/mock-data.ts
@@ -50,315 +50,246 @@ const data = {
       id: 'MDU6TGFiZWw4Mzk2MzgxMTU=',
       name: 'bug',
       description: "Something isn't working",
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: 'cfd3d7',
       id: 'MDU6TGFiZWw4Mzk2MzgxMTY=',
       name: 'duplicate',
       description: 'This issue or pull request already exists',
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: 'a2eeef',
       id: 'MDU6TGFiZWw4Mzk2MzgxMTc=',
       name: 'enhancement',
       description: 'New feature or request',
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: 'd876e3',
       id: 'MDU6TGFiZWw4Mzk2MzgxMjE=',
       name: 'futher info needed',
       description: 'Further information is requested',
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: '7057ff',
       id: 'MDU6TGFiZWw4Mzk2MzgxMTk=',
       name: 'good first issue',
       description: 'Good for newcomers',
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: '008672',
       id: 'MDU6TGFiZWw4Mzk2MzgxMTg=',
       name: 'up for grabs',
       description: "anyone can take on this work, it's ready to go",
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: 'ffffff',
       id: 'MDU6TGFiZWw4Mzk2MzgxMjI=',
       name: 'wontfix',
       description: 'This will not be worked on',
-      createdAt: '2018-02-17T00:09:05Z',
     },
     {
       color: 'FFD2ED',
       id: 'MDU6TGFiZWw4ODkxNjUwNzU=',
       name: '💓collab',
       description: 'a vibrant hub of collaboration',
-      createdAt: '2018-04-03T21:03:53Z',
     },
     {
       color: '9eea90',
       id: 'MDU6TGFiZWw5NDAyMzcyOTU=',
       name: 'status: wip',
-      description: '',
-      createdAt: '2018-05-21T19:11:15Z',
     },
     {
       color: 'eae658',
       id: 'MDU6TGFiZWw5NDAyMzc1NzY=',
       name: 'status: review needed',
-      description: '',
-      createdAt: '2018-05-21T19:11:36Z',
     },
     {
       color: 'a9abe8',
       id: 'MDU6TGFiZWw5NDA1MDc5NzQ=',
       name: 'type: discussion',
-      description: '',
-      createdAt: '2018-05-22T02:06:49Z',
     },
     {
       color: '86181d',
       id: 'MDU6TGFiZWw5NDg2NDM1MzI=',
       name: '🚧 blocked',
       description: 'Someone or something is preventing this from moving forward',
-      createdAt: '2018-05-29T22:02:54Z',
     },
     {
       color: '1d76db',
       id: 'MDU6TGFiZWwxMDI2NDE1MTYw',
       name: 'docs',
       description: 'Documentation',
-      createdAt: '2018-08-16T16:35:43Z',
     },
     {
       color: 'fcc0dc',
       id: 'MDU6TGFiZWwxMDU3MjcwNzA4',
       name: 'patch release',
       description: 'bug fixes, docs, housekeeping',
-      createdAt: '2018-09-14T20:27:34Z',
     },
     {
       color: 'ff73b4',
       id: 'MDU6TGFiZWwxMDU3MjcxMDUz',
       name: 'minor release',
       description: 'new features',
-      createdAt: '2018-09-14T20:28:01Z',
     },
     {
       color: 'e3006a',
       id: 'MDU6TGFiZWwxMDU3MjcxNDE5',
       name: 'major release',
       description: 'breaking changes',
-      createdAt: '2018-09-14T20:28:30Z',
     },
     {
       color: '107d93',
       id: 'MDU6TGFiZWwxMDU3MjczMjkz',
       name: 'deployment',
-      description: '',
-      createdAt: '2018-09-14T20:31:10Z',
     },
     {
       color: 'd4c5f9',
       id: 'MDU6TGFiZWwxMzgyNTYyNjQ0',
       name: 'accessibility',
-      description: '',
-      createdAt: '2019-05-29T19:56:35Z',
     },
     {
       color: '0366d6',
       id: 'MDU6TGFiZWwxNjE2MTQ5MDE2',
       name: 'dependencies',
       description: 'Pull requests that update a dependency file',
-      createdAt: '2019-10-14T18:19:49Z',
     },
     {
       color: 'e1e4e8',
       id: 'MDU6TGFiZWwxNjU3MjI0NTcw',
       name: 'fr-skip',
       description: 'Remove this from the Design Systems first responder list',
-      createdAt: '2019-11-04T18:18:03Z',
     },
     {
       color: 'fcba03',
       id: 'MDU6TGFiZWwxNzkwMDY4Mzk5',
       name: 'developer experience',
-      description: '',
-      createdAt: '2020-01-15T22:30:35Z',
     },
     {
       color: '68f9cc',
       id: 'MDU6TGFiZWwxNzkwMDY4NDg1',
       name: 'contributor experience',
-      description: '',
-      createdAt: '2020-01-15T22:30:41Z',
     },
     {
       color: 'a1b220',
       id: 'MDU6TGFiZWwxNzkwMDcyODY5',
       name: 'API',
-      description: '',
-      createdAt: '2020-01-15T22:34:09Z',
     },
     {
       color: '6494f4',
       id: 'MDU6TGFiZWwxNzkxNjM5MzM1',
       name: 'new component',
-      description: '',
-      createdAt: '2020-01-16T16:13:35Z',
     },
     {
       color: 'f48b96',
       id: 'MDU6TGFiZWwxOTg5MDAwNjk0',
       name: 'experimental',
-      description: '',
-      createdAt: '2020-04-15T20:52:13Z',
     },
     {
       color: 'db9360',
       id: 'MDU6TGFiZWwxOTkzNTcwNzUx',
       name: 'design',
-      description: '',
-      createdAt: '2020-04-17T15:08:45Z',
     },
     {
       color: 'F9D0C4',
       id: 'MDU6TGFiZWwyNjkzNTE0OTQw',
       name: 'coverage',
-      description: '',
-      createdAt: '2021-01-27T22:25:23Z',
     },
     {
       color: '077CA4',
       id: 'MDU6TGFiZWwyNjkzNTE5NTc1',
       name: 'epic',
-      description: '',
-      createdAt: '2021-01-27T22:27:57Z',
     },
     {
       color: 'F9D0C4',
       id: 'MDU6TGFiZWwyNjkzNTMwODUy',
       name: 'behaviors',
-      description: '',
-      createdAt: '2021-01-27T22:34:49Z',
     },
     {
       color: '1d76db',
       id: 'MDU6TGFiZWwyNzkzMjYwMTgz',
       name: 'typescript',
-      description: '',
-      createdAt: '2021-03-04T20:17:59Z',
     },
     {
       color: 'DBEDFF',
       id: 'MDU6TGFiZWwzMzA5MjY0Nzcz',
       name: 'size: sand',
-      description: '',
-      createdAt: '2021-08-31T02:08:34Z',
     },
     {
       color: 'DBEDFF',
       id: 'MDU6TGFiZWwzMzA5MjY1MDM2',
       name: 'size: pebble',
-      description: '',
-      createdAt: '2021-08-31T02:08:42Z',
     },
     {
       color: 'DBEDFF',
       id: 'MDU6TGFiZWwzMzA5MjY1MTc4',
       name: 'size: rock',
-      description: '',
-      createdAt: '2021-08-31T02:08:49Z',
     },
     {
       color: 'DBEDFF',
       id: 'MDU6TGFiZWwzMzA5MjY1NTg3',
       name: 'size: boulder',
-      description: '',
-      createdAt: '2021-08-31T02:09:00Z',
     },
     {
       color: 'ededed',
       id: 'MDU6TGFiZWwzMzE4NjA1ODgy',
       name: 'Stale',
       description: null,
-      createdAt: '2021-09-02T22:04:15Z',
     },
     {
       color: '0052CC',
       id: 'LA_kwDOB0K8ws7Oq_eD',
       name: 'react',
-      description: '',
-      createdAt: '2021-10-19T16:48:08Z',
     },
     {
       color: 'eeeeee',
       id: 'LA_kwDOB0K8ws7O4h4u',
       name: 'skip changeset',
-      description: '',
-      createdAt: '2021-10-20T16:15:21Z',
     },
     {
       color: 'D93F0B',
       id: 'LA_kwDOB0K8ws7WuYLd',
       name: 'do not merge',
-      description: '',
-      createdAt: '2021-12-01T19:02:44Z',
     },
     {
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