diff --git a/packages/components/CHANGELOG.md b/packages/components/CHANGELOG.md
index 06650771ce1ba8..8ce5c10ccf8fde 100644
--- a/packages/components/CHANGELOG.md
+++ b/packages/components/CHANGELOG.md
@@ -2,6 +2,10 @@
 
 ## Unreleased
 
+### Enhancements
+
+-   `ColorPalette`: ensure text label contrast checking works with CSS variables ([#47373](https://github.com/WordPress/gutenberg/pull/47373)).
+
 ### Internal
 
 -   `NavigatorButton`: Reuse `Button` types ([47754](https://github.com/WordPress/gutenberg/pull/47754)).
diff --git a/packages/components/src/color-palette/index.tsx b/packages/components/src/color-palette/index.tsx
index c967703141ea34..b72a611747b40f 100644
--- a/packages/components/src/color-palette/index.tsx
+++ b/packages/components/src/color-palette/index.tsx
@@ -10,7 +10,7 @@ import a11yPlugin from 'colord/plugins/a11y';
  * WordPress dependencies
  */
 import { __, sprintf } from '@wordpress/i18n';
-import { useCallback, useRef, useMemo, forwardRef } from '@wordpress/element';
+import { useCallback, useMemo, useState, forwardRef } from '@wordpress/element';
 
 /**
  * Internal dependencies
@@ -174,7 +174,6 @@ function UnforwardedColorPalette(
 	props: WordPressComponentProps< ColorPaletteProps, 'div' >,
 	forwardedRef: ForwardedRef< any >
 ) {
-	const customColorPaletteRef = useRef< HTMLElement | null >( null );
 	const {
 		clearable = true,
 		colors = [],
@@ -185,8 +184,17 @@ function UnforwardedColorPalette(
 		__experimentalIsRenderedInSidebar = false,
 		...otherProps
 	} = props;
+	const [ normalizedColorValue, setNormalizedColorValue ] = useState( value );
+
 	const clearColor = useCallback( () => onChange( undefined ), [ onChange ] );
 
+	const customColorPaletteCallbackRef = useCallback(
+		( node: HTMLElement | null ) => {
+			setNormalizedColorValue( normalizeColorValue( value, node ) );
+		},
+		[ value ]
+	);
+
 	const hasMultipleColorOrigins = isMultiplePaletteArray( colors );
 	const buttonLabelName = useMemo(
 		() =>
@@ -201,14 +209,14 @@ function UnforwardedColorPalette(
 	const renderCustomColorPicker = () => (
 		<DropdownContentWrapper paddingSize="none">
 			<ColorPicker
-				color={ normalizeColorValue( value, customColorPaletteRef ) }
+				color={ normalizedColorValue }
 				onChange={ ( color ) => onChange( color ) }
 				enableAlpha={ enableAlpha }
 			/>
 		</DropdownContentWrapper>
 	);
 
-	const colordColor = colord( value ?? '' );
+	const colordColor = colord( normalizedColorValue ?? '' );
 
 	const valueWithoutLeadingHash = value?.startsWith( '#' )
 		? value.substring( 1 )
@@ -246,7 +254,7 @@ function UnforwardedColorPalette(
 					renderToggle={ ( { isOpen, onToggle } ) => (
 						<Flex
 							as={ 'button' }
-							ref={ customColorPaletteRef }
+							ref={ customColorPaletteCallbackRef }
 							justify="space-between"
 							align="flex-start"
 							className="components-color-palette__custom-color"
diff --git a/packages/components/src/color-palette/test/utils.ts b/packages/components/src/color-palette/test/utils.ts
index c65b52739f996f..d862d35be5f52f 100644
--- a/packages/components/src/color-palette/test/utils.ts
+++ b/packages/components/src/color-palette/test/utils.ts
@@ -4,6 +4,7 @@
 import {
 	extractColorNameFromCurrentValue,
 	showTransparentBackground,
+	normalizeColorValue,
 } from '../utils';
 
 describe( 'ColorPalette: Utils', () => {
@@ -32,11 +33,26 @@ describe( 'ColorPalette: Utils', () => {
 			expect( showTransparentBackground( 'transparent' ) ).toBe( true );
 			expect( showTransparentBackground( '#75757500' ) ).toBe( true );
 		} );
-
 		test( 'should return false for non-transparent colors', () => {
 			expect( showTransparentBackground( '#FFF' ) ).toBe( false );
 			expect( showTransparentBackground( '#757575' ) ).toBe( false );
 			expect( showTransparentBackground( '#f5f5f524' ) ).toBe( false ); // 0.14 alpha.
 		} );
 	} );
+
+	describe( 'normalizeColorValue', () => {
+		test( 'should return the value as is if the color value is not a CSS variable', () => {
+			const element = document.createElement( 'div' );
+			expect( normalizeColorValue( '#ff0000', element ) ).toBe(
+				'#ff0000'
+			);
+		} );
+		test( 'should return the background color computed from a element if the color value is a CSS variable', () => {
+			const element = document.createElement( 'div' );
+			element.style.backgroundColor = '#ff0000';
+			expect( normalizeColorValue( 'var(--red)', element ) ).toBe(
+				'#ff0000'
+			);
+		} );
+	} );
 } );
diff --git a/packages/components/src/color-palette/utils.ts b/packages/components/src/color-palette/utils.ts
index 8a70d25a701e99..1ef7f308d01230 100644
--- a/packages/components/src/color-palette/utils.ts
+++ b/packages/components/src/color-palette/utils.ts
@@ -1,7 +1,6 @@
 /**
  * External dependencies
  */
-import type { RefObject } from 'react';
 import { colord, extend } from 'colord';
 import namesPlugin from 'colord/plugins/names';
 import a11yPlugin from 'colord/plugins/a11y';
@@ -76,21 +75,27 @@ export const isMultiplePaletteArray = (
 	);
 };
 
+/**
+ * Transform a CSS variable used as background color into the color value itself.
+ *
+ * @param value   The color value that may be a CSS variable.
+ * @param element The element for which to get the computed style.
+ * @return The background color value computed from a element.
+ */
 export const normalizeColorValue = (
 	value: string | undefined,
-	ref: RefObject< HTMLElement > | null
+	element: HTMLElement | null
 ) => {
 	const currentValueIsCssVariable = /^var\(/.test( value ?? '' );
 
-	if ( ! currentValueIsCssVariable || ! ref?.current ) {
+	if ( ! currentValueIsCssVariable || element === null ) {
 		return value;
 	}
 
-	const { ownerDocument } = ref.current;
+	const { ownerDocument } = element;
 	const { defaultView } = ownerDocument;
-	const computedBackgroundColor = defaultView?.getComputedStyle(
-		ref.current
-	).backgroundColor;
+	const computedBackgroundColor =
+		defaultView?.getComputedStyle( element ).backgroundColor;
 
 	return computedBackgroundColor
 		? colord( computedBackgroundColor ).toHex()