diff --git a/package-lock.json b/package-lock.json
index cf31a4d65..7a67c8b63 100644
--- a/package-lock.json
+++ b/package-lock.json
@@ -2399,6 +2399,7 @@
     },
     "node_modules/@clack/prompts/node_modules/is-unicode-supported": {
       "version": "1.3.0",
+      "extraneous": true,
       "inBundle": true,
       "license": "MIT",
       "engines": {
diff --git a/packages/components/combobox/src/Combobox.doc.mdx b/packages/components/combobox/src/Combobox.doc.mdx
index c3f22f306..481a6e2b2 100644
--- a/packages/components/combobox/src/Combobox.doc.mdx
+++ b/packages/components/combobox/src/Combobox.doc.mdx
@@ -99,33 +99,31 @@ AutoSuggest is used as the default behaviour. The user can type anything in the
 
 <Canvas of={stories.ControlledOpenState} />
 
-### Disabled
+### Custom filtering
 
-Use `disabled` on the root component to disable the combobox entirely.
+Disable `autoFilter` to implement your own logic to filter out items depending on the inputValue or some external logic.
 
-<Canvas of={stories.Disabled} />
-
-### Disabled Item
+This example showcases case-sensitive filtering.
 
-Use `disabled` on individual `Combobox.Item` to disable them.
+<Canvas of={stories.FilteringManual} />
 
-<Canvas of={stories.DisabledItem} />
+### Custom value entry
 
-### Filtering - AutoFilter
+Combo Box can be configured to allow entering custom values that aren’t included in the list of options.
 
-Use `autoFilter` to filter out items that does not match the input value. This behaviour is not case-sensitive.
+<Canvas of={stories.CustomValueEntry} />
 
-For more custom filtering, logic should be done on call-site to render only desired items.
+### Disabled
 
-<Canvas of={stories.FilteringAutoFilter} />
+Use `disabled` on the root component to disable the combobox entirely.
 
-### Filtering - Manual
+<Canvas of={stories.Disabled} />
 
-Use your own logic to filter out items depending on the inputValue or some external logic.
+### Disabled Item
 
-This example showcases case-sensitive filtering.
+Use `disabled` on individual `Combobox.Item` to disable them.
 
-<Canvas of={stories.FilteringManual} />
+<Canvas of={stories.DisabledItem} />
 
 ### Groups
 
diff --git a/packages/components/combobox/src/Combobox.stories.tsx b/packages/components/combobox/src/Combobox.stories.tsx
index ff7cab410..1015bd0dd 100644
--- a/packages/components/combobox/src/Combobox.stories.tsx
+++ b/packages/components/combobox/src/Combobox.stories.tsx
@@ -71,6 +71,7 @@ export const Default: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -102,6 +103,7 @@ export const Controlled: StoryFn = () => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -137,6 +139,7 @@ export const ControlledOpenState: StoryFn = () => {
 
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -161,6 +164,7 @@ export const CustomItem: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1" className="flex items-center gap-md">
               <Combobox.ItemText>To Kill a Mockingbird</Combobox.ItemText>
               <Tag>New</Tag>
@@ -192,16 +196,18 @@ export const CustomItem: StoryFn = _args => {
   )
 }
 
-export const Disabled: StoryFn = _args => {
+export const CustomValueEntry: StoryFn = _args => {
   return (
     <div className="pb-[300px]">
-      <Combobox disabled>
+      <Combobox allowCustomValue>
         <Combobox.Trigger>
           <Combobox.Input aria-label="Book" placeholder="Pick a book" />
+          <Combobox.Disclosure openedLabel="Close popup" closedLabel="Open popup" />
         </Combobox.Trigger>
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -215,19 +221,10 @@ export const Disabled: StoryFn = _args => {
   )
 }
 
-export const FilteringAutoFilter: StoryFn = _args => {
-  const items = {
-    'book-1': 'To Kill a Mockingbird',
-    'book-2': 'War and Peace',
-    'book-3': 'The Idiot',
-    'book-4': 'A Picture of Dorian Gray',
-    'book-5': '1984',
-    'book-6': 'Pride and Prejudice',
-  }
-
+export const Disabled: StoryFn = _args => {
   return (
     <div className="pb-[300px]">
-      <Combobox autoFilter>
+      <Combobox disabled>
         <Combobox.Trigger>
           <Combobox.Input aria-label="Book" placeholder="Pick a book" />
         </Combobox.Trigger>
@@ -235,11 +232,12 @@ export const FilteringAutoFilter: StoryFn = _args => {
         <Combobox.Popover>
           <Combobox.Items>
             <Combobox.Empty>No results found</Combobox.Empty>
-            {Object.entries(items).map(([value, text]) => (
-              <Combobox.Item value={value} key={value}>
-                {text}
-              </Combobox.Item>
-            ))}
+            <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
+            <Combobox.Item value="book-2">War and Peace</Combobox.Item>
+            <Combobox.Item value="book-3">The Idiot</Combobox.Item>
+            <Combobox.Item value="book-4">A Picture of Dorian Gray</Combobox.Item>
+            <Combobox.Item value="book-5">1984</Combobox.Item>
+            <Combobox.Item value="book-6">Pride and Prejudice</Combobox.Item>
           </Combobox.Items>
         </Combobox.Popover>
       </Combobox>
@@ -260,7 +258,7 @@ export const FilteringManual: StoryFn = () => {
 
   return (
     <div className="pb-[300px]">
-      <Combobox>
+      <Combobox autoFilter={false}>
         <Combobox.Trigger>
           <Combobox.Input
             aria-label="Book"
@@ -299,6 +297,7 @@ export const ReadOnly: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -322,6 +321,7 @@ export const DisabledItem: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3" disabled>
@@ -340,12 +340,13 @@ export const DisabledItem: StoryFn = _args => {
 export const Grouped: StoryFn = _args => {
   return (
     <div className="pb-[300px]">
-      <Combobox autoFilter>
+      <Combobox>
         <Combobox.Trigger>
           <Combobox.Input aria-label="Book" placeholder="Pick a book" />
         </Combobox.Trigger>
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Group>
               <Combobox.Label>Best-sellers</Combobox.Label>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
@@ -378,6 +379,7 @@ export const LeadingIcon: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
             <Combobox.Item value="book-2">War and Peace</Combobox.Item>
             <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -403,6 +405,7 @@ export const ItemIndicator: StoryFn = _args => {
 
         <Combobox.Popover>
           <Combobox.Items>
+            <Combobox.Empty>No results found</Combobox.Empty>
             <Combobox.Item value="book-1" className="flex items-center gap-md">
               <Combobox.ItemIndicator />
               <Combobox.ItemText>To Kill a Mockingbird</Combobox.ItemText>
@@ -450,6 +453,7 @@ export const Statuses: StoryFn = () => {
 
             <Combobox.Popover>
               <Combobox.Items>
+                <Combobox.Empty>No results found</Combobox.Empty>
                 <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
                 <Combobox.Item value="book-2">War and Peace</Combobox.Item>
                 <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -468,7 +472,7 @@ export const Statuses: StoryFn = () => {
 export const MultipleSelection: StoryFn = _args => {
   return (
     <div className="pb-[300px]">
-      <Combobox multiple autoFilter defaultValue={['book-1', 'book-2']}>
+      <Combobox multiple defaultValue={['book-1', 'book-2']}>
         <Combobox.Trigger>
           <Combobox.Input aria-label="Book" placeholder="Pick a book" />
         </Combobox.Trigger>
@@ -503,7 +507,7 @@ export const MultipleSelectionControlled: StoryFn = () => {
 
   return (
     <div className="flex flex-col  gap-md pb-[300px]">
-      <Combobox autoFilter multiple value={selectedValues} onValueChange={setSelectedValues}>
+      <Combobox multiple value={selectedValues} onValueChange={setSelectedValues}>
         <Combobox.Trigger>
           <Combobox.Input
             aria-label="Book"
@@ -541,6 +545,7 @@ export const FormFieldLabel: StoryFn = _args => {
           </Combobox.Trigger>
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -568,6 +573,7 @@ export const FormFieldHiddenLabel: StoryFn = _args => {
           </Combobox.Trigger>
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -594,6 +600,7 @@ export const FormFieldReadOnly: StoryFn = _args => {
 
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -619,6 +626,7 @@ export const FormFieldDisabled: StoryFn = _args => {
           </Combobox.Trigger>
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -644,6 +652,7 @@ export const FormFieldRequired: StoryFn = _args => {
           </Combobox.Trigger>
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="book-1">To Kill a Mockingbird</Combobox.Item>
               <Combobox.Item value="book-2">War and Peace</Combobox.Item>
               <Combobox.Item value="book-3">The Idiot</Combobox.Item>
@@ -675,6 +684,7 @@ export const FormFieldValidation: StoryFn = () => {
           </Combobox.Trigger>
           <Combobox.Popover>
             <Combobox.Items>
+              <Combobox.Empty>No results found</Combobox.Empty>
               <Combobox.Item value="default">default</Combobox.Item>
               <Combobox.Item value="success">success</Combobox.Item>
               <Combobox.Item value="alert">alert</Combobox.Item>
diff --git a/packages/components/combobox/src/Combobox.tsx b/packages/components/combobox/src/Combobox.tsx
index 6bff53235..e65cba058 100644
--- a/packages/components/combobox/src/Combobox.tsx
+++ b/packages/components/combobox/src/Combobox.tsx
@@ -4,13 +4,20 @@ export type ComboboxProps = ComboboxContextProps
 
 export const Combobox = ({
   children,
-  autoFilter = false,
+  autoFilter = true,
   disabled = false,
   readOnly = false,
+  allowCustomValue = false,
   ...props
 }: ComboboxProps) => {
   return (
-    <ComboboxProvider autoFilter={autoFilter} disabled={disabled} readOnly={readOnly} {...props}>
+    <ComboboxProvider
+      autoFilter={autoFilter}
+      disabled={disabled}
+      readOnly={readOnly}
+      allowCustomValue={allowCustomValue}
+      {...props}
+    >
       {children}
     </ComboboxProvider>
   )
diff --git a/packages/components/combobox/src/ComboboxContext.tsx b/packages/components/combobox/src/ComboboxContext.tsx
index f2e9e0517..de15112aa 100644
--- a/packages/components/combobox/src/ComboboxContext.tsx
+++ b/packages/components/combobox/src/ComboboxContext.tsx
@@ -61,6 +61,10 @@ export type ComboboxContextCommonProps = PropsWithChildren<{
    * When true, the items will be filtered depending on the value of the input (not case-sensitive).
    */
   autoFilter?: boolean
+  /**
+   * By default, the combobox will clear or restore the input value to the selected item value on blur.
+   */
+  allowCustomValue?: boolean
 }>
 
 interface ComboboxPropsSingle {
@@ -126,6 +130,7 @@ export const ComboboxProvider = ({
   multiple = false,
   disabled: disabledProp = false,
   readOnly: readOnlyProp = false,
+  allowCustomValue = false,
   state: stateProp,
 }: ComboboxContextProps) => {
   // Input state
@@ -172,6 +177,7 @@ export const ComboboxProvider = ({
     id,
     labelId,
     inputValue,
+    allowCustomValue,
     setInputValue: handleDownshiftInputChange,
     onInputValueChange,
     filteredItems: filteredItemsMap,
diff --git a/packages/components/combobox/src/ComboboxInput.tsx b/packages/components/combobox/src/ComboboxInput.tsx
index f2a7b37b8..fb8fa7e83 100644
--- a/packages/components/combobox/src/ComboboxInput.tsx
+++ b/packages/components/combobox/src/ComboboxInput.tsx
@@ -27,54 +27,41 @@ export const Input = forwardRef(
     }: InputProps,
     forwardedRef: Ref<HTMLInputElement>
   ) => {
-    const {
-      getDropdownProps,
-      getInputProps,
-      getLabelProps,
-      hasPopover,
-      disabled,
-      readOnly,
-      inputValue,
-      setInputValue,
-      setIsInputControlled,
-      setLastInteractionType,
-      setOnInputValueChange,
-      multiple,
-      selectedItem,
-      selectedItems,
-    } = useComboboxContext()
+    const ctx = useComboboxContext()
 
     const isControlled = valueProp != null
     const placeholder =
-      multiple && selectedItems.length ? selectedItems.map(i => i.text).join(', ') : placeholderProp
+      ctx.multiple && ctx.selectedItems.length
+        ? ctx.selectedItems.map(i => i.text).join(', ')
+        : placeholderProp
 
     useEffect(() => {
-      setIsInputControlled(isControlled)
+      ctx.setIsInputControlled(isControlled)
       if (isControlled) {
-        setInputValue(valueProp as string)
+        ctx.setInputValue(valueProp as string)
       }
     }, [isControlled, valueProp])
 
     useEffect(() => {
       // Make Downshift aware of `onValueChange` prop to dispatch it
       if (onValueChange) {
-        setOnInputValueChange(() => onValueChange)
+        ctx.setOnInputValueChange(() => onValueChange)
       }
 
       // Sync input with combobox default value
-      if (!multiple && selectedItem && !isControlled) {
-        setInputValue(selectedItem.text)
+      if (!ctx.multiple && ctx.selectedItem && !isControlled) {
+        ctx.setInputValue(ctx.selectedItem.text)
       }
     }, [])
 
-    const [PopoverTrigger, popoverTriggerProps] = hasPopover
+    const [PopoverTrigger, popoverTriggerProps] = ctx.hasPopover
       ? [Popover.Trigger, { asChild: true, type: undefined }]
       : [Fragment, {}]
 
-    const { ref: downshiftRef, ...downshiftInputProps } = getInputProps({
-      ...getDropdownProps(),
+    const { ref: downshiftRef, ...downshiftInputProps } = ctx.getInputProps({
+      ...ctx.getDropdownProps(),
       onKeyDown: () => {
-        setLastInteractionType('keyboard')
+        ctx.setLastInteractionType('keyboard')
       },
     })
 
@@ -84,7 +71,7 @@ export const Input = forwardRef(
       <>
         {ariaLabel && (
           <VisuallyHidden>
-            <label {...getLabelProps()}>{ariaLabel}</label>
+            <label {...ctx.getLabelProps()}>{ariaLabel}</label>
           </VisuallyHidden>
         )}
 
@@ -94,11 +81,11 @@ export const Input = forwardRef(
             ref={ref}
             type="text"
             placeholder={placeholder}
-            disabled={disabled || readOnly}
+            disabled={ctx.disabled || ctx.readOnly}
             className={cx('text-ellipsis', className)}
             {...props}
             {...downshiftInputProps}
-            value={inputValue}
+            value={ctx.inputValue}
           />
         </PopoverTrigger>
       </>
diff --git a/packages/components/combobox/src/tests/Combobox.test.tsx b/packages/components/combobox/src/tests/Combobox.test.tsx
index ef16c6e88..d250c5ee6 100644
--- a/packages/components/combobox/src/tests/Combobox.test.tsx
+++ b/packages/components/combobox/src/tests/Combobox.test.tsx
@@ -164,7 +164,7 @@ describe('Combobox', () => {
 
       // Given a combobox with no selected value yet
       render(
-        <Combobox autoFilter>
+        <Combobox>
           <Combobox.Trigger>
             <Combobox.Input aria-label="Book" placeholder="Pick a book" />
           </Combobox.Trigger>
diff --git a/packages/components/combobox/src/tests/singleSelection.test.tsx b/packages/components/combobox/src/tests/singleSelection.test.tsx
index ca8f663d6..c9abbfe5f 100644
--- a/packages/components/combobox/src/tests/singleSelection.test.tsx
+++ b/packages/components/combobox/src/tests/singleSelection.test.tsx
@@ -13,7 +13,7 @@ describe('Combobox', () => {
 
       // Given a combobox with no selected value yet
       render(
-        <Combobox>
+        <Combobox autoFilter={false}>
           <Combobox.Trigger>
             <Combobox.Input aria-label="Book" placeholder="Pick a book" />
           </Combobox.Trigger>
diff --git a/packages/components/combobox/src/useCombobox.ts b/packages/components/combobox/src/useCombobox.ts
index 44821ecde..7d53528c1 100644
--- a/packages/components/combobox/src/useCombobox.ts
+++ b/packages/components/combobox/src/useCombobox.ts
@@ -26,6 +26,7 @@ export interface DownshiftProps {
   multiple: boolean | undefined
   id: string
   labelId: string
+  allowCustomValue: boolean
 }
 
 /**
@@ -46,6 +47,7 @@ export const useCombobox = ({
   id,
   labelId,
   onInputValueChange,
+  allowCustomValue,
 }: DownshiftProps) => {
   const items = [...itemsMap.values()]
 
@@ -63,6 +65,14 @@ export const useCombobox = ({
     },
   })
 
+  const updateInputValue = (inputValue: string | undefined) => {
+    if (onInputValueChange) {
+      if (inputValue != null) onInputValueChange(inputValue)
+    } else {
+      setInputValue(inputValue)
+    }
+  }
+
   /**
    * Custom state reducer for multiple selection behaviour:
    * - keeps the component opened when the user selects an item
@@ -73,11 +83,57 @@ export const useCombobox = ({
     state,
     { changes, type }
   ) => {
-    if (!multiple) return changes
+    const match = [...itemsMap.values()].find(item => item.text === state.inputValue)
+
+    switch (type) {
+      case useDownshiftCombobox.stateChangeTypes.InputBlur:
+        if (allowCustomValue) return changes
+
+        /**
+         * If input has been cleared by the user, then we unselect the selectedItem
+         */
+        if (state.inputValue === '') {
+          return { ...changes, selectedItem: null }
+        }
+
+        if (match) {
+          return { ...changes, selectedItem: match }
+        } else {
+          const newinputValue = state.selectedItem?.text || ''
+          updateInputValue(newinputValue)
+
+          return { ...changes, inputValue: newinputValue }
+        }
+
+        return changes
+      default:
+        return changes
+    }
+  }
 
+  /**
+   * Custom state reducer for multiple selection behaviour:
+   * - keeps the component opened when the user selects an item
+   * - preserves the higlighted index when the user select an item
+   * - selected items can be unselected, even the last selected item (as opposed to single selection behaviour)
+   */
+  const multipleSelectionStateReducer: UseComboboxProps<ComboboxItem>['stateReducer'] = (
+    state,
+    { changes, type }
+  ) => {
     const { selectedItems, removeSelectedItem, addSelectedItem } = downshiftMultipleSelection
 
     switch (type) {
+      case useDownshiftCombobox.stateChangeTypes.InputBlur:
+        if (allowCustomValue) {
+          return changes
+        } else {
+          const newinputValue = ''
+          updateInputValue(newinputValue)
+
+          return { ...changes, inputValue: newinputValue }
+        }
+
       case useDownshiftCombobox.stateChangeTypes.InputKeyDownEnter:
       case useDownshiftCombobox.stateChangeTypes.ItemClick:
         if (changes.selectedItem != null) {
@@ -104,18 +160,9 @@ export const useCombobox = ({
     type,
     selectedItem: newSelectedItem,
   }) => {
-    const updateInputValue = (inputValue: string | undefined) => {
-      if (onInputValueChange) {
-        if (inputValue != null) onInputValueChange(inputValue)
-      } else {
-        setInputValue(inputValue)
-      }
-    }
-
     switch (type) {
       case useDownshiftCombobox.stateChangeTypes.InputKeyDownEnter:
       case useDownshiftCombobox.stateChangeTypes.ItemClick:
-      case useDownshiftCombobox.stateChangeTypes.InputBlur:
         if (newSelectedItem) {
           updateInputValue(multiple ? '' : newInputValue)
         }
@@ -151,7 +198,7 @@ export const useCombobox = ({
       if (isOpen != null) onOpenChange?.(isOpen)
     },
     initialIsOpen: defaultOpen ?? false,
-    stateReducer,
+    stateReducer: multiple ? multipleSelectionStateReducer : stateReducer,
     // Controlled mode (single selection)
     selectedItem: value ? itemsMap.get(value as string) : undefined,
     initialSelectedItem: defaultValue ? itemsMap.get(defaultValue as string) : undefined,