diff --git a/change/@fluentui-react-positioning-9ba5afb4-921b-4a5f-bc1d-4ba812a14719.json b/change/@fluentui-react-positioning-9ba5afb4-921b-4a5f-bc1d-4ba812a14719.json
new file mode 100644
index 00000000000000..70bcf63ff2e98c
--- /dev/null
+++ b/change/@fluentui-react-positioning-9ba5afb4-921b-4a5f-bc1d-4ba812a14719.json
@@ -0,0 +1,7 @@
+{
+  "type": "patch",
+  "comment": "Fixes #35968",
+  "packageName": "@fluentui/react-positioning",
+  "email": "paulmardling@microsoft.com",
+  "dependentChangeType": "patch"
+}
diff --git a/change/@fluentui-react-tag-picker-910df714-82d7-4dda-8bf8-2dfd9a9815d9.json b/change/@fluentui-react-tag-picker-910df714-82d7-4dda-8bf8-2dfd9a9815d9.json
new file mode 100644
index 00000000000000..83834889909651
--- /dev/null
+++ b/change/@fluentui-react-tag-picker-910df714-82d7-4dda-8bf8-2dfd9a9815d9.json
@@ -0,0 +1,7 @@
+{
+  "type": "patch",
+  "comment": "Fixed popup positioning drift when the anchor moves during parent entry animations (for example, TagPicker inside Dialog), by refreshing placement during animation frames.",
+  "packageName": "@fluentui/react-tag-picker",
+  "email": "paulmardling@microsoft.com",
+  "dependentChangeType": "patch"
+}
diff --git a/packages/react-components/react-positioning/library/etc/react-positioning.api.md b/packages/react-components/react-positioning/library/etc/react-positioning.api.md
index 9a2e65951c1e13..06d74f3c996cd6 100644
--- a/packages/react-components/react-positioning/library/etc/react-positioning.api.md
+++ b/packages/react-components/react-positioning/library/etc/react-positioning.api.md
@@ -96,7 +96,7 @@ export type PositioningImperativeRef = {
 };
 
 // @public
-export interface PositioningProps extends Pick<PositioningOptions, 'align' | 'arrowPadding' | 'autoSize' | 'coverTarget' | 'fallbackPositions' | 'flipBoundary' | 'offset' | 'overflowBoundary' | 'overflowBoundaryPadding' | 'pinned' | 'position' | 'strategy' | 'useTransform' | 'matchTargetSize' | 'onPositioningEnd' | 'disableUpdateOnResize' | 'shiftToCoverTarget'> {
+export interface PositioningProps extends Pick<PositioningOptions, 'align' | 'arrowPadding' | 'autoSize' | 'coverTarget' | 'fallbackPositions' | 'flipBoundary' | 'offset' | 'overflowBoundary' | 'overflowBoundaryPadding' | 'pinned' | 'position' | 'strategy' | 'useTransform' | 'matchTargetSize' | 'onPositioningEnd' | 'disableUpdateOnResize' | 'updatePositionOnAnimationFrame' | 'shiftToCoverTarget'> {
     positioningRef?: React_2.Ref<PositioningImperativeRef>;
     target?: TargetElement | null;
 }
diff --git a/packages/react-components/react-positioning/library/src/createPositionManager.test.ts b/packages/react-components/react-positioning/library/src/createPositionManager.test.ts
index 943c592c0d8a1f..70ce690ed2d69c 100644
--- a/packages/react-components/react-positioning/library/src/createPositionManager.test.ts
+++ b/packages/react-components/react-positioning/library/src/createPositionManager.test.ts
@@ -171,4 +171,52 @@ describe('createPositionManager', () => {
 
     expect(listener).not.toHaveBeenCalled();
   });
+
+  it('schedules updatePosition on animation frames when enabled', async () => {
+    computePositionMock.mockResolvedValue({
+      x: 10,
+      y: 20,
+      placement: 'bottom',
+      strategy: 'absolute',
+      middlewareData: mockMiddlewareData,
+    });
+
+    const { container, target } = createTestElements();
+    const win = container.ownerDocument.defaultView!;
+    const rafCallbacks: FrameRequestCallback[] = [];
+
+    const requestAnimationFrameSpy = jest.spyOn(win, 'requestAnimationFrame').mockImplementation(callback => {
+      rafCallbacks.push(callback);
+      return rafCallbacks.length;
+    });
+    const cancelAnimationFrameSpy = jest.spyOn(win, 'cancelAnimationFrame').mockImplementation(() => undefined);
+
+    const manager = createPositionManager({
+      container,
+      target,
+      arrow: null,
+      strategy: 'absolute',
+      middleware: [],
+      placement: 'bottom',
+      disableUpdateOnResize: true,
+      updatePositionOnAnimationFrame: true,
+    });
+
+    await flushMicrotasks();
+    expect(computePositionMock).toHaveBeenCalledTimes(1);
+    expect(requestAnimationFrameSpy).toHaveBeenCalled();
+
+    const callback = rafCallbacks.shift();
+    expect(callback).toBeDefined();
+
+    callback?.(16);
+    await flushMicrotasks();
+    expect(computePositionMock).toHaveBeenCalledTimes(2);
+
+    manager.dispose();
+    expect(cancelAnimationFrameSpy).toHaveBeenCalled();
+
+    requestAnimationFrameSpy.mockRestore();
+    cancelAnimationFrameSpy.mockRestore();
+  });
 });
diff --git a/packages/react-components/react-positioning/library/src/createPositionManager.ts b/packages/react-components/react-positioning/library/src/createPositionManager.ts
index 3e5136cecf8312..d5d0fa2d7769b8 100644
--- a/packages/react-components/react-positioning/library/src/createPositionManager.ts
+++ b/packages/react-components/react-positioning/library/src/createPositionManager.ts
@@ -42,6 +42,10 @@ interface PositionManagerOptions {
    * Disables the resize observer that updates position on target or dimension change
    */
   disableUpdateOnResize?: boolean;
+  /**
+   * Continuously updates position on animation frames while mounted.
+   */
+  updatePositionOnAnimationFrame?: boolean;
 }
 
 /**
@@ -59,6 +63,7 @@ export function createPositionManager(options: PositionManagerOptions): Position
     placement,
     useTransform = true,
     disableUpdateOnResize = false,
+    updatePositionOnAnimationFrame = false,
   } = options;
   const targetWindow = container.ownerDocument.defaultView;
   if (!target || !container || !targetWindow) {
@@ -84,6 +89,7 @@ export function createPositionManager(options: PositionManagerOptions): Position
       });
 
   let isFirstUpdate = true;
+  let animationFrameId: number | undefined;
   const scrollParents: Set<HTMLElement> = new Set<HTMLElement>();
 
   // When the container is first resolved, set position `fixed` to avoid scroll jumps.
@@ -163,6 +169,17 @@ export function createPositionManager(options: PositionManagerOptions): Position
 
   const updatePosition = debounce(() => forceUpdate());
 
+  const scheduleAnimationFrameUpdate = () => {
+    if (!targetWindow || !updatePositionOnAnimationFrame || isDestroyed) {
+      return;
+    }
+
+    animationFrameId = targetWindow.requestAnimationFrame(() => {
+      updatePosition();
+      scheduleAnimationFrameUpdate();
+    });
+  };
+
   const dispose = () => {
     isDestroyed = true;
 
@@ -176,6 +193,11 @@ export function createPositionManager(options: PositionManagerOptions): Position
     });
     scrollParents.clear();
 
+    if (targetWindow && animationFrameId !== undefined) {
+      targetWindow.cancelAnimationFrame(animationFrameId);
+      animationFrameId = undefined;
+    }
+
     resizeObserver?.disconnect();
   };
 
@@ -186,6 +208,7 @@ export function createPositionManager(options: PositionManagerOptions): Position
 
   // Update the position on initialization
   updatePosition();
+  scheduleAnimationFrameUpdate();
 
   return {
     updatePosition,
diff --git a/packages/react-components/react-positioning/library/src/types.ts b/packages/react-components/react-positioning/library/src/types.ts
index a0e81a2370e622..573c5106ae8fdb 100644
--- a/packages/react-components/react-positioning/library/src/types.ts
+++ b/packages/react-components/react-positioning/library/src/types.ts
@@ -246,6 +246,14 @@ export interface PositioningOptions {
    */
   disableUpdateOnResize?: boolean;
 
+  /**
+   * Continuously updates position on animation frames while the positioned element is mounted.
+   * Useful when the target can move due to ancestor animations that do not trigger scroll or resize observers.
+   *
+   * @default false
+   */
+  updatePositionOnAnimationFrame?: boolean;
+
   /**
    * When true, the positioned element will shift to cover the target element when there's not enough space.
    * @default false
@@ -275,6 +283,7 @@ export interface PositioningProps
     | 'matchTargetSize'
     | 'onPositioningEnd'
     | 'disableUpdateOnResize'
+    | 'updatePositionOnAnimationFrame'
     | 'shiftToCoverTarget'
   > {
   /** An imperative handle to Popper methods. */
diff --git a/packages/react-components/react-positioning/library/src/usePositioning.ts b/packages/react-components/react-positioning/library/src/usePositioning.ts
index 0eeeda8f41a34f..bde3dce56773ad 100644
--- a/packages/react-components/react-positioning/library/src/usePositioning.ts
+++ b/packages/react-components/react-positioning/library/src/usePositioning.ts
@@ -26,7 +26,7 @@ export function usePositioning(options: PositioningProps & PositioningOptions):
   const containerRef = React.useRef<HTMLElement | null>(null);
   const arrowRef = React.useRef<HTMLElement | null>(null);
 
-  const { enabled = true } = options;
+  const { enabled = true, updatePositionOnAnimationFrame = false } = options;
   const resolvePositioningOptions = usePositioningOptions(options);
   const updatePositionManager = React.useCallback(() => {
     if (managerRef.current) {
@@ -41,10 +41,11 @@ export function usePositioning(options: PositioningProps & PositioningOptions):
         container: containerRef.current,
         target,
         arrow: arrowRef.current,
+        updatePositionOnAnimationFrame,
         ...resolvePositioningOptions(containerRef.current, arrowRef.current),
       });
     }
-  }, [enabled, resolvePositioningOptions]);
+  }, [enabled, resolvePositioningOptions, updatePositionOnAnimationFrame]);
 
   const setOverrideTarget = useEventCallback((target: TargetElement | null) => {
     overrideTargetRef.current = target;
diff --git a/packages/react-components/react-tag-picker/library/src/components/TagPicker/TagPicker.cy.tsx b/packages/react-components/react-tag-picker/library/src/components/TagPicker/TagPicker.cy.tsx
index 1306696f3c2ac3..ee9fa17a31c3f2 100644
--- a/packages/react-components/react-tag-picker/library/src/components/TagPicker/TagPicker.cy.tsx
+++ b/packages/react-components/react-tag-picker/library/src/components/TagPicker/TagPicker.cy.tsx
@@ -12,6 +12,7 @@ import { TagPickerList } from '../TagPickerList/TagPickerList';
 import { TagPickerOption } from '../TagPickerOption/TagPickerOption';
 import { Avatar } from '@fluentui/react-avatar';
 import { Button } from '@fluentui/react-button';
+import { Dialog, DialogActions, DialogBody, DialogSurface, type DialogProps } from '@fluentui/react-dialog';
 
 import 'cypress-real-events';
 import { tagPickerControlClassNames } from '../TagPickerControl/useTagPickerControlStyles.styles';
@@ -110,6 +111,127 @@ const TagPickerControlled = ({
   );
 };
 
+const TagPickerInAnimatedDialog = () => {
+  const [dialogOpen, setDialogOpen] = React.useState(false);
+  const [selectedOptions, setSelectedOptions] = React.useState<string[]>([]);
+  const [loadedOptions, setLoadedOptions] = React.useState<string[]>([]);
+  const hasLoadedOnceRef = React.useRef(false);
+  const animatedHostRef = React.useRef<HTMLDivElement>(null);
+
+  React.useEffect(() => {
+    if (!dialogOpen) {
+      return;
+    }
+
+    if (animatedHostRef.current) {
+      animatedHostRef.current.dataset.animating = 'true';
+    }
+
+    const animation = animatedHostRef.current?.animate(
+      [{ transform: 'translate3d(40px, 21px, 0)' }, { transform: 'translate3d(0, 0, 0)' }],
+      { duration: 50, easing: 'ease-out', fill: 'forwards' },
+    );
+
+    if (animation) {
+      animation.onfinish = () => {
+        if (animatedHostRef.current) {
+          animatedHostRef.current.dataset.animating = 'false';
+        }
+      };
+    }
+
+    return () => animation?.cancel();
+  }, [dialogOpen]);
+
+  React.useEffect(() => {
+    if (!dialogOpen) {
+      return;
+    }
+
+    if (hasLoadedOnceRef.current) {
+      setLoadedOptions(options);
+      return;
+    }
+
+    setLoadedOptions([]);
+    const timeoutId = setTimeout(() => {
+      hasLoadedOnceRef.current = true;
+      setLoadedOptions(options);
+    }, 50);
+
+    return () => clearTimeout(timeoutId);
+  }, [dialogOpen]);
+
+  const onOptionSelect: TagPickerProps['onOptionSelect'] = (_, data) => {
+    if (data.value === 'no-options') {
+      return;
+    }
+
+    setSelectedOptions(data.selectedOptions);
+  };
+
+  const onOpenChange: DialogProps['onOpenChange'] = (_, data) => setDialogOpen(data.open);
+  const tagPickerOptions = loadedOptions.filter(option => !selectedOptions.includes(option));
+
+  return (
+    <>
+      <Button data-testid="open-dialog" onClick={() => setDialogOpen(true)}>
+        Open dialog
+      </Button>
+      <Button data-testid="close-dialog" onClick={() => setDialogOpen(false)}>
+        Close dialog
+      </Button>
+
+      <Dialog open={dialogOpen} onOpenChange={onOpenChange}>
+        <DialogSurface>
+          <DialogBody data-testid="dialog-body">
+            <div data-testid="dialog-tag-picker-host" ref={animatedHostRef}>
+              <TagPicker
+                onOptionSelect={onOptionSelect}
+                selectedOptions={selectedOptions}
+                open={tagPickerOptions.length > 0}
+              >
+                <TagPickerControl data-testid="dialog-tag-picker-control">
+                  <TagPickerGroup>
+                    {selectedOptions.map(option => (
+                      <Tag
+                        key={option}
+                        shape="rounded"
+                        media={<Avatar name={option} color="colorful" />}
+                        value={option}
+                      >
+                        {option}
+                      </Tag>
+                    ))}
+                  </TagPickerGroup>
+                  <TagPickerInput aria-label="Select Employees" />
+                </TagPickerControl>
+                <TagPickerList data-testid="dialog-tag-picker-list">
+                  {tagPickerOptions.length > 0 ? (
+                    tagPickerOptions.map(option => (
+                      <TagPickerOption media={<Avatar name={option} color="colorful" />} value={option} key={option}>
+                        {option}
+                      </TagPickerOption>
+                    ))
+                  ) : (
+                    <TagPickerOption value="no-options">No options available</TagPickerOption>
+                  )}
+                </TagPickerList>
+              </TagPicker>
+            </div>
+
+            <DialogActions>
+              <Button appearance="secondary" data-testid="dialog-internal-close" onClick={() => setDialogOpen(false)}>
+                Close
+              </Button>
+            </DialogActions>
+          </DialogBody>
+        </DialogSurface>
+      </Dialog>
+    </>
+  );
+};
+
 describe('TagPicker', () => {
   it('should render a closed listbox', () => {
     mount(<TagPickerControlled />);
@@ -443,4 +565,35 @@ describe('TagPicker', () => {
     cy.get('[data-testid="tag-picker-input"]').realClick();
     cy.get('[data-testid="tag-picker-list"]').should('not.exist');
   });
+
+  describe('Dialog integration', () => {
+    it('keeps the dropdown aligned with the control when reopened during the dialog entry animation', () => {
+      cy.viewport(1024, 900);
+      mount(<TagPickerInAnimatedDialog />);
+
+      const assertDropdownAlignedToControl = () => {
+        cy.get('[data-testid="dialog-tag-picker-control"]').should('be.visible');
+        cy.get('[data-testid="dialog-tag-picker-host"]').should('have.attr', 'data-animating', 'false');
+        cy.get('[data-testid="dialog-tag-picker-list"]', { timeout: 200 })
+          .should('be.visible')
+          .should($list => {
+            const controlRect = Cypress.$('[data-testid="dialog-tag-picker-control"]')[0].getBoundingClientRect();
+            const listRect = $list[0].getBoundingClientRect();
+
+            expect(listRect.width, 'dropdown width matches control width').to.be.closeTo(controlRect.width, 4);
+            expect(listRect.left, 'dropdown left aligns with control left').to.be.closeTo(controlRect.left, 4);
+            expect(listRect.top, 'dropdown sits directly below control').to.be.closeTo(controlRect.bottom, 6);
+          });
+      };
+
+      cy.get('[data-testid="open-dialog"]').realClick();
+      assertDropdownAlignedToControl();
+
+      cy.get('[data-testid="close-dialog"]').realClick();
+      cy.get('[data-testid="dialog-tag-picker-control"]').should('not.exist');
+
+      cy.get('[data-testid="open-dialog"]').realClick();
+      assertDropdownAlignedToControl();
+    });
+  });
 });
diff --git a/packages/react-components/react-tag-picker/library/src/components/TagPicker/useTagPicker.ts b/packages/react-components/react-tag-picker/library/src/components/TagPicker/useTagPicker.ts
index 6c47cbb52f7cb4..c34b4898a46e64 100644
--- a/packages/react-components/react-tag-picker/library/src/components/TagPicker/useTagPicker.ts
+++ b/packages/react-components/react-tag-picker/library/src/components/TagPicker/useTagPicker.ts
@@ -128,6 +128,7 @@ export const useTagPicker_unstable = (props: TagPickerProps): TagPickerState =>
     offset: { crossAxis: 0, mainAxis: 2 },
     fallbackPositions,
     matchTargetSize: 'width' as const,
+    updatePositionOnAnimationFrame: true,
     ...resolvePositioningShorthand(positioning),
   });
 
diff --git a/packages/react-components/react-tag-picker/stories/src/TagPicker/TagPickerDialogRepositioning.stories.tsx b/packages/react-components/react-tag-picker/stories/src/TagPicker/TagPickerDialogRepositioning.stories.tsx
new file mode 100644
index 00000000000000..5b6cec96bf250c
--- /dev/null
+++ b/packages/react-components/react-tag-picker/stories/src/TagPicker/TagPickerDialogRepositioning.stories.tsx
@@ -0,0 +1,106 @@
+import * as React from 'react';
+import type { JSXElement, TagPickerProps } from '@fluentui/react-components';
+import {
+  Dialog,
+  DialogTrigger,
+  DialogSurface,
+  DialogTitle,
+  DialogBody,
+  DialogContent,
+  Button,
+  TagPicker,
+  TagPickerList,
+  TagPickerInput,
+  TagPickerControl,
+  TagPickerOption,
+  TagPickerGroup,
+  Tag,
+  Avatar,
+  Field,
+  DialogActions,
+} from '@fluentui/react-components';
+
+const options = [
+  'John Doe',
+  'Jane Doe',
+  'Max Mustermann',
+  'Erika Mustermann',
+  'Pierre Dupont',
+  'Amelie Dupont',
+  'Mario Rossi',
+  'Maria Rossi',
+];
+
+export const DialogWithTagPicker = (): JSXElement => {
+  const [selectedOptions, setSelectedOptions] = React.useState<string[]>([]);
+
+  const onOptionSelect: TagPickerProps['onOptionSelect'] = (e, data) => {
+    if (data.value === 'no-options') {
+      return;
+    }
+
+    setSelectedOptions(data.selectedOptions);
+  };
+
+  const tagPickerOptions = options.filter(option => !selectedOptions.includes(option));
+
+  return (
+    <Dialog>
+      <DialogTrigger disableButtonEnhancement>
+        <Button>Open dialog</Button>
+      </DialogTrigger>
+      <DialogSurface>
+        <DialogBody>
+          <DialogTitle>Select People</DialogTitle>
+          <DialogContent>
+            <Field label="Select Employees" style={{ maxWidth: 400 }}>
+              <TagPicker
+                onOptionSelect={onOptionSelect}
+                selectedOptions={selectedOptions}
+                open={tagPickerOptions.length > 0}
+              >
+                <TagPickerControl>
+                  <TagPickerGroup aria-label="Selected Employees">
+                    {selectedOptions.map(option => (
+                      <Tag
+                        key={option}
+                        shape="rounded"
+                        media={<Avatar aria-hidden name={option} color="colorful" />}
+                        value={option}
+                      >
+                        {option}
+                      </Tag>
+                    ))}
+                  </TagPickerGroup>
+                  <TagPickerInput aria-label="Select Employees" />
+                </TagPickerControl>
+
+                <TagPickerList>
+                  {tagPickerOptions.length > 0 ? (
+                    tagPickerOptions.map(option => (
+                      <TagPickerOption
+                        media={<Avatar shape="square" aria-hidden name={option} color="colorful" />}
+                        value={option}
+                        key={option}
+                      >
+                        {option}
+                      </TagPickerOption>
+                    ))
+                  ) : (
+                    <TagPickerOption value="no-options">No options available</TagPickerOption>
+                  )}
+                </TagPickerList>
+              </TagPicker>
+            </Field>
+          </DialogContent>
+
+          <DialogActions>
+            <DialogTrigger disableButtonEnhancement>
+              <Button appearance="secondary">Close</Button>
+            </DialogTrigger>
+          </DialogActions>
+        </DialogBody>
+      </DialogSurface>
+    </Dialog>
+  );
+};
diff --git a/packages/react-components/react-tag-picker/stories/src/TagPicker/index.stories.tsx b/packages/react-components/react-tag-picker/stories/src/TagPicker/index.stories.tsx
index 32a0f841262503..6263eb3dfe07f9 100644
--- a/packages/react-components/react-tag-picker/stories/src/TagPicker/index.stories.tsx
+++ b/packages/react-components/react-tag-picker/stories/src/TagPicker/index.stories.tsx
@@ -25,6 +25,7 @@ export { TruncatedText } from './TagPickerTruncatedText.stories';
 export { SingleSelect } from './TagPickerSingleSelect.stories';
 export { NoPopover } from './TagPickerNoPopover.stories';
 export { SingleLine } from './TagPickerSingleLine.stories';
+export { DialogWithTagPicker } from './TagPickerDialogRepositioning.stories';
 
 export default {
   title: 'Components/TagPicker',