diff --git a/src/sugar/graphics/palette.py b/src/sugar/graphics/palette.py
index a29a9412..c681af9d 100644
--- a/src/sugar/graphics/palette.py
+++ b/src/sugar/graphics/palette.py
@@ -340,26 +340,38 @@ class PaletteWindow(gtk.Window):
         else:
             self.hide()
 
-    def _invoker_mouse_enter_cb(self, invoker):
+    def on_invoker_enter(self):
         self._mouse_detector.start()
 
-    def _invoker_mouse_leave_cb(self, invoker):
+    def on_invoker_leave(self):
         self._mouse_detector.stop()
         self.popdown()
 
+    def on_enter(self, event):
+        self._popdown_anim.stop()
+        self._secondary_anim.start()
+
+    def on_leave(self, event):
+        self.popdown()
+
+    def _invoker_mouse_enter_cb(self, invoker):
+        self.on_invoker_enter()
+
+    def _invoker_mouse_leave_cb(self, invoker):
+        self.on_invoker_leave()
+
     def _invoker_right_click_cb(self, invoker):
         self.popup(immediate=True)
 
     def __enter_notify_event_cb(self, widget, event):
         if event.detail != gtk.gdk.NOTIFY_INFERIOR and \
                 event.mode == gtk.gdk.CROSSING_NORMAL:
-            self._popdown_anim.stop()
-            self._secondary_anim.start()
+            self.on_enter(event)
 
     def __leave_notify_event_cb(self, widget, event):
         if event.detail != gtk.gdk.NOTIFY_INFERIOR and \
                 event.mode == gtk.gdk.CROSSING_NORMAL:
-            self.popdown()
+            self.on_leave(event)
 
     def __show_cb(self, widget):
         self._invoker.notify_popup()
@@ -385,7 +397,7 @@ class PaletteWindow(gtk.Window):
         y = win_y + rectangle.y
         width = rectangle.width
         height = rectangle.height
-        
+
         return gtk.gdk.Rectangle(x, y, width, height)
 
 class Palette(PaletteWindow):
diff --git a/src/sugar/graphics/toolbarbox.py b/src/sugar/graphics/toolbarbox.py
index 2344b534..91c5c2d8 100644
--- a/src/sugar/graphics/toolbarbox.py
+++ b/src/sugar/graphics/toolbarbox.py
@@ -24,6 +24,7 @@ import gtk
 from sugar.graphics import style
 from sugar.graphics.palette import PaletteWindow, ToolInvoker
 from sugar.graphics.toolbutton import ToolButton
+from sugar.graphics import palettegroup
 
 class ToolbarButton(ToolButton):
     def __init__(self, page=None, **kwargs):
@@ -68,7 +69,7 @@ class ToolbarButton(ToolButton):
                 self.page_widget in self.toolbar_box.get_children():
             self.toolbar_box.remove(self.page_widget)
 
-        if self.props.palette is not None:
+        if isinstance(self.props.palette, _ToolbarPalette):
             self.props.palette.add(self.page_widget)
 
     def is_expanded(self):
@@ -176,6 +177,37 @@ class _ToolbarPalette(PaletteWindow):
         PaletteWindow.__init__(self, **kwargs)
         self.toolbar_box = None
         self.set_border_width(0)
+        self._focus = 0
+
+        group = palettegroup.get_group('default')
+        group.connect('popdown', self.__group_popdown_cb)
+        self.set_group_id('toolbar_box')
+
+    def on_invoker_enter(self):
+        PaletteWindow.on_invoker_enter(self)
+        self._handle_focus(+1)
+
+    def on_invoker_leave(self):
+        PaletteWindow.on_invoker_leave(self)
+        self._handle_focus(-1)
+
+    def on_enter(self, event):
+        PaletteWindow.on_enter(self, event)
+        self._handle_focus(+1)
+
+    def on_leave(self, event):
+        PaletteWindow.on_enter(self, event)
+        self._handle_focus(-1)
+
+    def _handle_focus(self, delta):
+        self._focus += delta
+        if self._focus not in (0, 1):
+            logging.error('_Palette._focus=%s not in (0, 1)' % self._focus)
+
+        if self._focus == 0:
+            group = palettegroup.get_group('default')
+            if not group.is_up():
+                self.popdown()
 
     def do_size_request(self, requisition):
         gtk.Window.do_size_request(self, requisition)
@@ -191,6 +223,10 @@ class _ToolbarPalette(PaletteWindow):
                 box.props.padding)
         PaletteWindow.popup(self, immediate)
 
+    def __group_popdown_cb(self, group):
+        if self._focus == 0:
+            self.popdown(immediate=True)
+
 class _Box(gtk.EventBox):
     def __init__(self):
         gtk.EventBox.__init__(self)