diff --git a/packages/grafana-ui/src/components/Combobox/Combobox.story.tsx b/packages/grafana-ui/src/components/Combobox/Combobox.story.tsx
index 2b0e4dcf178..53e1a2c0276 100644
--- a/packages/grafana-ui/src/components/Combobox/Combobox.story.tsx
+++ b/packages/grafana-ui/src/components/Combobox/Combobox.story.tsx
@@ -76,7 +76,7 @@ type Story = StoryObj<typeof Combobox>;
 
 export const Basic: Story = {};
 
-async function generateOptions(amount: number): Promise<ComboboxOption[]> {
+export async function generateOptions(amount: number): Promise<ComboboxOption[]> {
   return Array.from({ length: amount }, (_, index) => ({
     label: 'Option ' + index,
     value: index.toString(),
diff --git a/packages/grafana-ui/src/components/Combobox/Combobox.tsx b/packages/grafana-ui/src/components/Combobox/Combobox.tsx
index de23afd82e4..4022e98a48e 100644
--- a/packages/grafana-ui/src/components/Combobox/Combobox.tsx
+++ b/packages/grafana-ui/src/components/Combobox/Combobox.tsx
@@ -111,6 +111,8 @@ function itemFilter<T extends string | number>(inputValue: string) {
 const noop = () => {};
 const asyncNoop = () => Promise.resolve([]);
 
+export const VIRTUAL_OVERSCAN_ITEMS = 4;
+
 /**
  * A performant Select replacement.
  *
@@ -214,7 +216,7 @@ export const Combobox = <T extends string | number>(props: ComboboxProps<T>) =>
     count: items.length,
     getScrollElement: () => scrollRef.current,
     estimateSize: () => MENU_OPTION_HEIGHT,
-    overscan: 4,
+    overscan: VIRTUAL_OVERSCAN_ITEMS,
   };
 
   const rowVirtualizer = useVirtualizer(virtualizerOptions);
diff --git a/packages/grafana-ui/src/components/Combobox/MultiCombobox.internal.story.tsx b/packages/grafana-ui/src/components/Combobox/MultiCombobox.internal.story.tsx
index 948fd1632cc..f40e9f62bdd 100644
--- a/packages/grafana-ui/src/components/Combobox/MultiCombobox.internal.story.tsx
+++ b/packages/grafana-ui/src/components/Combobox/MultiCombobox.internal.story.tsx
@@ -1,7 +1,9 @@
 import { action } from '@storybook/addon-actions';
-import { useArgs } from '@storybook/preview-api';
-import type { Meta, StoryObj } from '@storybook/react';
+import { useArgs, useEffect, useState } from '@storybook/preview-api';
+import type { Meta, StoryFn, StoryObj } from '@storybook/react';
 
+import { ComboboxOption } from './Combobox';
+import { generateOptions } from './Combobox.story';
 import { MultiCombobox } from './MultiCombobox';
 
 const meta: Meta<typeof MultiCombobox> = {
@@ -23,6 +25,9 @@ const commonArgs = {
 
 export default meta;
 
+type storyArgs = React.ComponentProps<typeof MultiCombobox>;
+type ManyOptionsArgs = storyArgs & { numberOfOptions?: number };
+
 type Story = StoryObj<typeof MultiCombobox>;
 
 export const Basic: Story = {
@@ -42,3 +47,42 @@ export const Basic: Story = {
     );
   },
 };
+
+const ManyOptionsStory: StoryFn<ManyOptionsArgs> = ({ numberOfOptions = 1e4, ...args }) => {
+  const [value, setValue] = useState<string[]>([]);
+  const [options, setOptions] = useState<ComboboxOption[]>([]);
+  const [isLoading, setIsLoading] = useState(true);
+
+  useEffect(() => {
+    setTimeout(() => {
+      generateOptions(numberOfOptions).then((options) => {
+        setIsLoading(false);
+        setOptions(options);
+        setValue([options[5].value]);
+      });
+    }, 1000);
+  }, [numberOfOptions]);
+
+  const { onChange, ...rest } = args;
+  return (
+    <MultiCombobox
+      {...rest}
+      loading={isLoading}
+      options={options}
+      value={value}
+      onChange={(opts) => {
+        setValue(opts || []);
+        action('onChange')(opts);
+      }}
+    />
+  );
+};
+
+export const ManyOptions: StoryObj<ManyOptionsArgs> = {
+  args: {
+    numberOfOptions: 1e4,
+    options: undefined,
+    value: undefined,
+  },
+  render: ManyOptionsStory,
+};
diff --git a/packages/grafana-ui/src/components/Combobox/MultiCombobox.test.tsx b/packages/grafana-ui/src/components/Combobox/MultiCombobox.test.tsx
index 8b4129b3937..2f44fd1dd11 100644
--- a/packages/grafana-ui/src/components/Combobox/MultiCombobox.test.tsx
+++ b/packages/grafana-ui/src/components/Combobox/MultiCombobox.test.tsx
@@ -5,6 +5,21 @@ import React from 'react';
 import { MultiCombobox, MultiComboboxProps } from './MultiCombobox';
 
 describe('MultiCombobox', () => {
+  beforeAll(() => {
+    const mockGetBoundingClientRect = jest.fn(() => ({
+      width: 120,
+      height: 120,
+      top: 0,
+      left: 0,
+      bottom: 0,
+      right: 0,
+    }));
+
+    Object.defineProperty(Element.prototype, 'getBoundingClientRect', {
+      value: mockGetBoundingClientRect,
+    });
+  });
+
   let user: UserEvent;
 
   beforeEach(() => {
diff --git a/packages/grafana-ui/src/components/Combobox/MultiCombobox.tsx b/packages/grafana-ui/src/components/Combobox/MultiCombobox.tsx
index d21c0599055..2dfc72663b6 100644
--- a/packages/grafana-ui/src/components/Combobox/MultiCombobox.tsx
+++ b/packages/grafana-ui/src/components/Combobox/MultiCombobox.tsx
@@ -1,19 +1,27 @@
 import { cx } from '@emotion/css';
+import { useVirtualizer } from '@tanstack/react-virtual';
 import { useCombobox, useMultipleSelection } from 'downshift';
-import { useCallback, useMemo, useState } from 'react';
+import { useCallback, useEffect, useMemo, useState } from 'react';
 
 import { useStyles2 } from '../../themes';
 import { Checkbox } from '../Forms/Checkbox';
 import { Box } from '../Layout/Box/Box';
+import { Stack } from '../Layout/Stack/Stack';
 import { Portal } from '../Portal/Portal';
 import { ScrollContainer } from '../ScrollContainer/ScrollContainer';
 import { Text } from '../Text/Text';
 import { Tooltip } from '../Tooltip';
 
-import { ComboboxOption, ComboboxBaseProps, AutoSizeConditionals, itemToString } from './Combobox';
+import {
+  ComboboxOption,
+  ComboboxBaseProps,
+  AutoSizeConditionals,
+  itemToString,
+  VIRTUAL_OVERSCAN_ITEMS,
+} from './Combobox';
 import { OptionListItem } from './OptionListItem';
 import { ValuePill } from './ValuePill';
-import { getComboboxStyles } from './getComboboxStyles';
+import { getComboboxStyles, MENU_OPTION_HEIGHT } from './getComboboxStyles';
 import { getMultiComboboxStyles } from './getMultiComboboxStyles';
 import { useComboboxFloat } from './useComboboxFloat';
 import { useMeasureMulti } from './useMeasureMulti';
@@ -40,7 +48,13 @@ export const MultiCombobox = <T extends string | number>(props: MultiComboboxPro
 
   const styles = useStyles2(getComboboxStyles);
 
-  const [items, _baseSetItems] = useState(isAsync ? [] : options);
+  const [items, baseSetItems] = useState(isAsync ? [] : options);
+
+  // TODO: Improve this with async
+  useEffect(() => {
+    baseSetItems(isAsync ? [] : options);
+  }, [options, isAsync]);
+
   const [isOpen, setIsOpen] = useState(false);
 
   const { inputRef: containerRef, floatingRef, floatStyles, scrollRef } = useComboboxFloat(items, isOpen);
@@ -96,8 +110,12 @@ export const MultiCombobox = <T extends string | number>(props: MultiComboboxPro
           return {
             ...changes,
             isOpen: true,
-            defaultHighlightedIndex: 0,
+            highlightedIndex: state.highlightedIndex,
           };
+        case useCombobox.stateChangeTypes.InputBlur:
+          setInputValue('');
+          setIsOpen(false);
+          return changes;
         default:
           return changes;
       }
@@ -115,10 +133,6 @@ export const MultiCombobox = <T extends string | number>(props: MultiComboboxPro
             removeSelectedItem(newSelectedItem); // onChange is handled by multiselect here
           }
           break;
-        case useCombobox.stateChangeTypes.InputBlur:
-          setIsOpen(false);
-          setInputValue('');
-          break;
         case useCombobox.stateChangeTypes.InputChange:
           setInputValue(newInputValue ?? '');
           break;
@@ -128,6 +142,15 @@ export const MultiCombobox = <T extends string | number>(props: MultiComboboxPro
     },
   });
 
+  const virtualizerOptions = {
+    count: items.length,
+    getScrollElement: () => scrollRef.current,
+    estimateSize: () => MENU_OPTION_HEIGHT,
+    overscan: VIRTUAL_OVERSCAN_ITEMS,
+  };
+
+  const rowVirtualizer = useVirtualizer(virtualizerOptions);
+
   const visibleItems = isOpen ? selectedItems : selectedItems.slice(0, shownItems);
 
   return (
@@ -190,21 +213,32 @@ export const MultiCombobox = <T extends string | number>(props: MultiComboboxPro
         >
           {isOpen && (
             <ScrollContainer showScrollIndicators maxHeight="inherit" ref={scrollRef}>
-              <ul>
-                {items.map((item, index) => {
+              <ul style={{ height: rowVirtualizer.getTotalSize() }} className={styles.menuUlContainer}>
+                {rowVirtualizer.getVirtualItems().map((virtualRow) => {
+                  const index = virtualRow.index;
+                  const item = items[index];
                   const itemProps = getItemProps({ item, index });
                   const isSelected = isOptionSelected(item);
                   const id = 'multicombobox-option-' + item.value.toString();
                   return (
                     <li
-                      key={item.value}
+                      key={`${item.value}-${index}`}
+                      data-index={index}
                       {...itemProps}
-                      style={highlightedIndex === index ? { backgroundColor: 'blue' } : {}}
+                      className={cx(styles.option, { [styles.optionFocused]: highlightedIndex === index })}
+                      style={{ height: virtualRow.size, transform: `translateY(${virtualRow.start}px)` }}
                     >
-                      {' '}
-                      {/* Add styling with virtualization */}
-                      <Checkbox key={id} value={isSelected} aria-labelledby={id} />
-                      <OptionListItem option={item} id={id} />
+                      <Stack direction="row" alignItems="center">
+                        <Checkbox
+                          key={id}
+                          value={isSelected}
+                          aria-labelledby={id}
+                          onClick={(e) => {
+                            e.stopPropagation();
+                          }}
+                        />
+                        <OptionListItem option={item} id={id} />
+                      </Stack>
                     </li>
                   );
                 })}