diff --git a/example/src/NestedNodes/index.tsx b/example/src/NestedNodes/index.tsx
new file mode 100644
index 00000000..232578e0
--- /dev/null
+++ b/example/src/NestedNodes/index.tsx
@@ -0,0 +1,186 @@
+import { useState, MouseEvent, useCallback } from 'react';
+
+import ReactFlow, {
+  addEdge,
+  Background,
+  applyNodeChanges,
+  applyEdgeChanges,
+  MiniMap,
+  Controls,
+  Node,
+  Edge,
+  NodeChange,
+  EdgeChange,
+  OnLoadParams,
+  Connection,
+} from 'react-flow-renderer';
+
+const onNodeDragStop = (_: MouseEvent, node: Node) => console.log('drag stop', node);
+const onNodeClick = (_: MouseEvent, node: Node) => console.log('click', node);
+const onEdgeClick = (_: MouseEvent, edge: Edge) => console.log('click', edge);
+
+const initialNodes: Node[] = [
+  { id: '1', type: 'input', data: { label: 'Node 1' }, position: { x: 250, y: 5 }, className: 'light' },
+  {
+    id: '2',
+    data: { label: 'Node 2' },
+    position: { x: 100, y: 100 },
+    className: 'light',
+    style: { backgroundColor: 'rgba(255, 0, 0, 0.8)', width: 200, height: 200 },
+  },
+  {
+    id: '2a',
+    data: { label: 'Node 2a' },
+    position: { x: 10, y: 50 },
+    parentNode: '2',
+  },
+  { id: '3', data: { label: 'Node 3' }, position: { x: 320, y: 100 }, className: 'light' },
+  {
+    id: '4',
+    data: { label: 'Node 4' },
+    position: { x: 320, y: 200 },
+    className: 'light',
+    style: { backgroundColor: 'rgba(255, 0, 0, 0.7)', width: 300, height: 300 },
+  },
+  {
+    id: '4a',
+    data: { label: 'Node 4a' },
+    position: { x: 15, y: 65 },
+    className: 'light',
+    parentNode: '4',
+    extent: 'parent',
+  },
+  {
+    id: '4b',
+    data: { label: 'Node 4b' },
+    position: { x: 15, y: 120 },
+    className: 'light',
+    style: { backgroundColor: 'rgba(255, 0, 255, 0.7)', height: 150, width: 270 },
+    parentNode: '4',
+  },
+  {
+    id: '4b1',
+    data: { label: 'Node 4b1' },
+    position: { x: 20, y: 40 },
+    className: 'light',
+    parentNode: '4b',
+  },
+  {
+    id: '4b2',
+    data: { label: 'Node 4b2' },
+    position: { x: 100, y: 100 },
+    className: 'light',
+    parentNode: '4b',
+  },
+];
+
+const initialEdges: Edge[] = [
+  { id: 'e1-2', source: '1', target: '2', animated: true },
+  { id: 'e1-3', source: '1', target: '3' },
+  { id: 'e2a-4a', source: '2a', target: '4a' },
+  { id: 'e3-4', source: '3', target: '4' },
+  { id: 'e3-4b', source: '3', target: '4b' },
+  { id: 'e4a-4b1', source: '4a', target: '4b1' },
+  { id: 'e4a-4b2', source: '4a', target: '4b2' },
+  { id: 'e4b1-4b2', source: '4b1', target: '4b2' },
+];
+
+function shuffle() {
+  return Math.random() - Math.random();
+}
+
+const NestedFlow = () => {
+  const [rfInstance, setRfInstance] = useState<OnLoadParams | null>(null);
+  const [nodes, setNodes] = useState<Node[]>(initialNodes);
+  const [edges, setEdges] = useState<Edge[]>(initialEdges);
+
+  const onConnect = useCallback((params: Edge | Connection) => {
+    setEdges((eds) => {
+      return addEdge(params, eds);
+    });
+  }, []);
+  const onLoad = useCallback((reactFlowInstance: OnLoadParams) => setRfInstance(reactFlowInstance), []);
+
+  const updatePos = () => {
+    setNodes((nds) => {
+      return nds.map((n) => {
+        n.position = {
+          x: Math.random() * 400,
+          y: Math.random() * 400,
+        };
+
+        return n;
+      });
+    });
+  };
+
+  const logToObject = () => console.log(rfInstance?.toObject());
+  const resetTransform = () => rfInstance?.setTransform({ x: 0, y: 0, zoom: 1 });
+
+  const toggleClassnames = () => {
+    setNodes((nds) => {
+      return nds.map((n) => {
+        n.className = n.className === 'light' ? 'dark' : 'light';
+        return n;
+      });
+    });
+  };
+
+  const toggleChildNodes = () => {
+    setNodes((nds) => {
+      return nds.map((n) => {
+        n.isHidden = !!n.parentNode && !n.isHidden;
+        return n;
+      });
+    });
+  };
+
+  const onNodesChange = useCallback((changes: NodeChange[]) => {
+    setNodes((ns) => applyNodeChanges(changes, ns));
+  }, []);
+
+  const onEdgesChange = useCallback((changes: EdgeChange[]) => {
+    setEdges((es) => applyEdgeChanges(changes, es));
+  }, []);
+
+  return (
+    <ReactFlow
+      nodes={nodes}
+      edges={edges}
+      onLoad={onLoad}
+      onNodesChange={onNodesChange}
+      onEdgesChange={onEdgesChange}
+      onNodeClick={onNodeClick}
+      onEdgeClick={onEdgeClick}
+      onConnect={onConnect}
+      onNodeDragStop={onNodeDragStop}
+      className="react-flow-basic-example"
+      defaultZoom={1.5}
+      minZoom={0.2}
+      maxZoom={4}
+      onlyRenderVisibleElements={false}
+    >
+      <MiniMap />
+      <Controls />
+      <Background />
+
+      <div style={{ position: 'absolute', right: 10, top: 10, zIndex: 4 }}>
+        <button onClick={resetTransform} style={{ marginRight: 5 }}>
+          reset transform
+        </button>
+        <button onClick={updatePos} style={{ marginRight: 5 }}>
+          change pos
+        </button>
+        <button onClick={toggleClassnames} style={{ marginRight: 5 }}>
+          toggle classnames
+        </button>
+        <button style={{ marginRight: 5 }} onClick={toggleChildNodes}>
+          toggleChildNodes
+        </button>
+        <button onClick={logToObject}>toObject</button>
+      </div>
+    </ReactFlow>
+  );
+};
+
+export default NestedFlow;
diff --git a/example/src/index.tsx b/example/src/index.tsx
index 1f44867f..b23fc09c 100644
--- a/example/src/index.tsx
+++ b/example/src/index.tsx
@@ -8,12 +8,13 @@ import Stress from './Stress';
 import CustomNode from './CustomNode';
 import FloatingEdges from './FloatingEdges';
 import Layouting from './Layouting';
+import NestedNodes from './NestedNodes';
 
 import './index.css';
 
 const routes = [
   {
-    path: '/basic',
+    path: '/',
     component: Basic,
   },
   {
@@ -36,6 +37,10 @@ const routes = [
     path: '/layouting',
     component: Layouting,
   },
+  {
+    path: '/nested-nodes',
+    component: NestedNodes,
+  },
 ];
 
 const Header = withRouter(({ history, location }) => {
diff --git a/src/store/utils.ts b/src/store/utils.ts
index 928adf45..7ab8c1a6 100644
--- a/src/store/utils.ts
+++ b/src/store/utils.ts
@@ -38,7 +38,7 @@ export function createNodeInternals(nodes: Node[], nodeInternals: NodeInternals)
       height: node.height || null,
       position: node.position,
       positionAbsolute: node.position,
-      treeLevel: node.zIndex || 0,
+      treeLevel: node.isDragging || node.isSelected ? 1000 : node.zIndex || 0,
     };
     if (node.parentNode) {
       internals.parentNode = node.parentNode;
@@ -51,9 +51,11 @@ export function createNodeInternals(nodes: Node[], nodeInternals: NodeInternals)
     const updatedInternals: NodeInternalsItem = nextNodeInternals.get(node.id)!;
 
     if (node.parentNode) {
+      const parentNodeInternal = nextNodeInternals.get(node.parentNode);
+
       const positionAbsoluteAndTreeLevel = getAbsolutePosAndTreeLevel(node, nextNodeInternals, {
         ...node.position,
-        treeLevel: node.zIndex || 0,
+        treeLevel: node.zIndex || updatedInternals?.treeLevel || parentNodeInternal?.treeLevel || 0,
       });
 
       const { treeLevel, x, y } = positionAbsoluteAndTreeLevel;
@@ -66,11 +68,11 @@ export function createNodeInternals(nodes: Node[], nodeInternals: NodeInternals)
       updatedInternals.treeLevel = treeLevel;
     }
 
-    if ((node.isDragging || node.isSelected) && !parentNodes[node.id]) {
-      nextNodeInternals.set(node.id, { ...updatedInternals, treeLevel: 1000 });
-    } else {
-      nextNodeInternals.set(node.id, { ...updatedInternals, treeLevel: updatedInternals?.treeLevel || 0 });
-    }
+    // if (node.isDragging || node.isSelected) {
+    //   nextNodeInternals.set(node.id, { ...updatedInternals, treeLevel: 1000 });
+    // } else {
+    //   nextNodeInternals.set(node.id, { ...updatedInternals, treeLevel: updatedInternals?.treeLevel || 0 });
+    // }
   });
 
   return nextNodeInternals;