diff --git a/src/components/base/new_dropdowns/listbox/listbox.vue b/src/components/base/new_dropdowns/listbox/listbox.vue
index babb34b33c6c43e8e9e15aeaa2273a96a97f25bb..2045efcfd4aa53d84cfbb8ae5c427125650e7a21 100644
--- a/src/components/base/new_dropdowns/listbox/listbox.vue
+++ b/src/components/base/new_dropdowns/listbox/listbox.vue
@@ -1,15 +1,14 @@
 <!-- eslint-disable vue/multi-word-component-names -->
 <script>
-import clamp from 'lodash/clamp';
 import uniqueId from 'lodash/uniqueId';
 import isNil from 'lodash/isNil';
-import { stopEvent } from '../../../../utils/utils';
 import {
   GL_DROPDOWN_SHOWN,
   GL_DROPDOWN_HIDDEN,
   ENTER,
   HOME,
   END,
+  SPACE,
   ARROW_DOWN,
   ARROW_UP,
   GL_DROPDOWN_CONTENTS_CLASS,
@@ -48,6 +47,14 @@ const GROUP_TOP_BORDER_CLASSES = [
 ];
 export const SEARCH_INPUT_SELECTOR = '.gl-listbox-search-input';
 
+const FOCUS_STYLE = `
+.gl-new-dropdown-item-focused {
+  outline: 2px solid var(--blue-500) !important;
+  outline-offset: -2px !important;
+  z-index: 1 !important;
+}
+`;
+
 export default {
   name: 'GlCollapsibleListbox',
   HEADER_ITEMS_BORDER_CLASSES,
@@ -377,6 +384,9 @@ export default {
       searchStr: '',
       topBoundaryVisible: true,
       bottomBoundaryVisible: true,
+      activeDescendantId: null,
+      lastSelectionAnnouncement: '',
+      announcementTimeout: null,
     };
   },
   computed: {
@@ -496,6 +506,12 @@ export default {
     hasFooter() {
       return Boolean(this.$scopedSlots.footer);
     },
+    selectionAnnouncement() {
+      if (!this.lastSelectionAnnouncement) {
+        return '';
+      }
+      return this.lastSelectionAnnouncement;
+    },
   },
   watch: {
     selected: {
@@ -571,9 +587,17 @@ export default {
       this.open();
     }
     this.observeScroll();
+
+    if (!document.getElementById('gl-listbox-focus-styles')) {
+      const styleEl = document.createElement('style');
+      styleEl.id = 'gl-listbox-focus-styles';
+      styleEl.textContent = FOCUS_STYLE;
+      document.head.appendChild(styleEl);
+    }
   },
   beforeDestroy() {
     this.scrollObserver?.disconnect();
+    clearTimeout(this.announcementTimeout);
   },
   methods: {
     open() {
@@ -589,20 +613,20 @@ export default {
       if (this.searchable) {
         this.focusSearchInput();
 
-        /**
-         * If the search string is not empty, highlight the first item
-         */
         if (this.searchHasOptions) {
-          this.nextFocusedItemIndex = 0;
+          const elements = this.getFocusableListItemElements();
+          if (elements.length > 0) {
+            this.activateItem(0, elements);
+          }
         }
       } else {
-        this.focusItem(this.selectedIndices[0] ?? 0, this.getFocusableListItemElements());
+        const itemIndex = this.selectedIndices[0] ?? 0;
+        const elements = this.getFocusableListItemElements();
+        this.activateItem(itemIndex, elements);
+
+        this.$refs.list?.focus();
       }
-      /**
-       * Emitted when dropdown is shown
-       *
-       * @event shown
-       */
+
       this.$emit(GL_DROPDOWN_SHOWN);
     },
     onHide() {
@@ -615,73 +639,120 @@ export default {
       this.nextFocusedItemIndex = null;
     },
     onKeydown(event) {
-      const { code, target } = event;
+      const { code } = event;
       const elements = this.getFocusableListItemElements();
 
-      if (elements.length < 1) return;
-
-      let stop = true;
-      const isSearchInput = target.matches(SEARCH_INPUT_SELECTOR);
+      if (elements.length === 0) return;
 
       if (code === HOME) {
-        if (isSearchInput) {
-          return;
-        }
-        this.focusItem(0, elements);
+        this.activateItem(0, elements);
+        event.preventDefault();
       } else if (code === END) {
-        if (isSearchInput) {
-          return;
-        }
-        this.focusItem(elements.length - 1, elements);
+        this.activateItem(elements.length - 1, elements);
+        event.preventDefault();
       } else if (code === ARROW_UP) {
-        if (isSearchInput) {
-          return;
-        }
-        if (this.searchable && elements.indexOf(target) === 0) {
+        this.handleArrowUp(event, elements);
+      } else if (code === ARROW_DOWN) {
+        this.handleArrowDown(event, elements);
+      } else if (code === ENTER || code === SPACE) {
+        this.handleEnterOrSpace(event);
+      }
+    },
+    handleArrowUp(event, elements) {
+      const isSearchInput = event.target.matches(SEARCH_INPUT_SELECTOR);
+
+      if (isSearchInput) {
+        return;
+      }
+
+      const currentIndex = this.nextFocusedItemIndex !== null ? this.nextFocusedItemIndex : 0;
+
+      if (currentIndex <= 0) {
+        if (this.searchable) {
           this.focusSearchInput();
-          if (!this.searchHasOptions) {
-            this.nextFocusedItemIndex = null;
-          }
+          this.activeDescendantId = null;
+          this.nextFocusedItemIndex = null;
         } else {
-          this.focusNextItem(event, elements, -1);
+          this.activateItem(elements.length - 1, elements);
         }
-      } else if (code === ARROW_DOWN) {
-        if (isSearchInput) {
-          this.focusItem(0, elements);
-        } else {
-          this.focusNextItem(event, elements, 1);
+      } else {
+        this.activateItem(currentIndex - 1, elements);
+      }
+
+      event.preventDefault();
+    },
+    handleArrowDown(event, elements) {
+      const isSearchInput = event.target.matches(SEARCH_INPUT_SELECTOR);
+
+      if (isSearchInput) {
+        if (elements.length > 0) {
+          this.activateItem(0, elements);
+          event.preventDefault();
         }
-      } else if (code === ENTER && isSearchInput) {
-        if (this.searchHasOptions && elements.length > 0) {
+        return;
+      }
+
+      const currentIndex = this.nextFocusedItemIndex !== null ? this.nextFocusedItemIndex : -1;
+
+      if (currentIndex >= elements.length - 1) {
+        this.activateItem(0, elements);
+      } else {
+        this.activateItem(currentIndex + 1, elements);
+      }
+
+      event.preventDefault();
+    },
+    handleEnterOrSpace(event) {
+      const isSearchInput = event.target.matches(SEARCH_INPUT_SELECTOR);
+
+      if (isSearchInput && event.code === ENTER) {
+        if (this.searchHasOptions && this.flattenedOptions.length > 0) {
           this.onSelect(this.flattenedOptions[0], true);
+          event.preventDefault();
         }
-        stop = true;
-      } else {
-        stop = false;
+      } else if (!isSearchInput && this.nextFocusedItemIndex !== null) {
+        const currentItem = this.flattenedOptions[this.nextFocusedItemIndex];
+        if (currentItem) {
+          this.onSelect(currentItem, !this.isSelected(currentItem));
+          event.preventDefault();
+        }
+      }
+    },
+    activateItem(index, elements) {
+      if (index < 0 || !elements || elements.length === 0) {
+        this.activeDescendantId = null;
+        this.nextFocusedItemIndex = null;
+        return;
       }
 
-      if (stop) {
-        stopEvent(event);
+      this.nextFocusedItemIndex = index;
+
+      const item = elements[index];
+      if (!item) return;
+
+      this.activeDescendantId = item.id;
+
+      this.scrollItemIntoView(item);
+    },
+    scrollItemIntoView(item) {
+      const container = this.$refs.list;
+      if (!container) return;
+
+      const containerRect = container.getBoundingClientRect();
+      const itemRect = item.getBoundingClientRect();
+
+      if (itemRect.top < containerRect.top) {
+        container.scrollTop -= containerRect.top - itemRect.top;
+      } else if (itemRect.bottom > containerRect.bottom) {
+        container.scrollTop += itemRect.bottom - containerRect.bottom;
       }
     },
     getFocusableListItemElements() {
       const items = this.$refs.list?.querySelectorAll(ITEM_SELECTOR);
       return Array.from(items || []);
     },
-    focusNextItem(event, elements, offset) {
-      const { target } = event;
-      const currentIndex = elements.indexOf(target);
-      const nextIndex = clamp(currentIndex + offset, 0, elements.length - 1);
-
-      this.focusItem(nextIndex, elements);
-    },
-    focusItem(index, elements) {
-      this.nextFocusedItemIndex = index;
-
-      elements[index]?.focus();
-    },
     focusSearchInput() {
-      this.$refs.searchBox.focusInput();
+      this.$refs.searchBox?.focusInput();
     },
     onSelect(item, isSelected) {
       if (this.multiple) {
@@ -689,6 +760,9 @@ export default {
       } else {
         this.onSingleSelect(item.value, isSelected);
       }
+
+      // Announce selection changes to screen readers
+      this.announceSelectionChange(item, isSelected);
     },
     isHighlighted(item) {
       return this.nextFocusedItemIndex === this.flattenedOptions.indexOf(item);
@@ -797,6 +871,17 @@ export default {
       this.scrollObserver = observer;
     },
     isOption,
+    announceSelectionChange(item, isSelected) {
+      clearTimeout(this.announcementTimeout);
+
+      const action = isSelected ? 'selected' : 'deselected';
+      this.lastSelectionAnnouncement = `${item.text} ${action}`;
+
+      // Clear the announcement after a short delay
+      this.announcementTimeout = setTimeout(() => {
+        this.lastSelectionAnnouncement = '';
+      }, 3000);
+    },
   },
 };
 </script>
@@ -889,6 +974,8 @@ export default {
       :id="listboxId"
       ref="list"
       :aria-labelledby="listAriaLabelledBy || headerId || toggleIdComputed"
+      :aria-activedescendant="activeDescendantId"
+      :aria-multiselectable="multiple ? 'true' : undefined"
       role="listbox"
       class="gl-new-dropdown-contents gl-new-dropdown-contents-with-scrim-overlay"
       :class="listboxClasses"
@@ -911,6 +998,7 @@ export default {
             :is-selected="isSelected(item)"
             :is-focused="isFocused(item)"
             :is-check-centered="isCheckCentered"
+            :unique-id="`${listboxId}-item-${index}`"
             v-bind="listboxItemMoreItemsAriaAttributes(index)"
             @select="onSelect(item, $event)"
           >
@@ -990,5 +1078,15 @@ export default {
     </div>
     <!-- @slot Content to display in dropdown footer -->
     <slot name="footer"></slot>
+
+    <!-- Screen reader announcements -->
+    <span
+      v-if="selectionAnnouncement"
+      class="gl-sr-only"
+      aria-live="assertive"
+      data-testid="listbox-selection-announcement"
+    >
+      {{ selectionAnnouncement }}
+    </span>
   </gl-base-dropdown>
 </template>
diff --git a/src/components/base/new_dropdowns/listbox/listbox_item.vue b/src/components/base/new_dropdowns/listbox/listbox_item.vue
index 837837ad09364c67963c81339696286e77a5cd45..44f12286a154d9c7a31bbe757f3dcf18b3f19421 100644
--- a/src/components/base/new_dropdowns/listbox/listbox_item.vue
+++ b/src/components/base/new_dropdowns/listbox/listbox_item.vue
@@ -1,4 +1,5 @@
 <script>
+import uniqueId from 'lodash/uniqueId';
 import GlIcon from '../../icon/icon.vue';
 import { ENTER, SPACE } from '../constants';
 import { stopEvent } from '../../../../utils/utils';
@@ -29,6 +30,13 @@ export default {
       default: false,
       required: false,
     },
+    uniqueId: {
+      type: String,
+      required: false,
+      default() {
+        return uniqueId('listbox-item-');
+      },
+    },
   },
   computed: {
     checkedClasses() {
@@ -38,6 +46,19 @@ export default {
 
       return 'gl-mt-3 gl-self-start';
     },
+    listboxItemClasses() {
+      return [
+        'gl-new-dropdown-item',
+        {
+          'gl-new-dropdown-item-highlighted': this.isHighlighted,
+          'gl-new-dropdown-item-focused': this.isFocused,
+          'gl-new-dropdown-item-selected': this.isSelected,
+        },
+      ];
+    },
+  },
+  created() {
+    this.$attrs.id = this.uniqueId;
   },
   methods: {
     toggleSelection() {
@@ -57,9 +78,10 @@ export default {
 
 <template>
   <li
-    :class="['gl-new-dropdown-item', { 'gl-new-dropdown-item-highlighted': isHighlighted }]"
+    :id="uniqueId"
+    :class="listboxItemClasses"
     role="option"
-    :tabindex="isFocused ? 0 : -1"
+    :tabindex="-1"
     :aria-selected="isSelected"
     @click="toggleSelection"
     @keydown="onKeydown"
@@ -73,6 +95,7 @@ export default {
           { 'gl-invisible': !isSelected },
           checkedClasses,
         ]"
+        aria-hidden="true"
       />
       <span class="gl-new-dropdown-item-text-wrapper">
         <slot></slot>
diff --git a/src/components/base/new_dropdowns/listbox/listbox_search_input.vue b/src/components/base/new_dropdowns/listbox/listbox_search_input.vue
index 05136b284cc979998cc143f4ab173da768bc41ff..a190a04b7eabc50640617f0fffd0a1fa7751938c 100644
--- a/src/components/base/new_dropdowns/listbox/listbox_search_input.vue
+++ b/src/components/base/new_dropdowns/listbox/listbox_search_input.vue
@@ -57,7 +57,7 @@ export default {
 
 <template>
   <div class="gl-listbox-search">
-    <gl-icon name="search-sm" :size="12" class="gl-listbox-search-icon" />
+    <gl-icon name="search-sm" :size="12" class="gl-listbox-search-icon" aria-hidden="true" />
     <input
       ref="input"
       type="search"
@@ -65,11 +65,13 @@ export default {
       class="gl-listbox-search-input"
       :aria-label="placeholder"
       :placeholder="placeholder"
+      aria-controls="listbox"
       v-on="inputListeners"
     />
     <gl-clear-icon-button
       v-if="hasValue"
       class="gl-listbox-search-clear-button"
+      aria-label="Clear search"
       @click.stop="clearInput"
     />
   </div>