diff --git a/packages/components/src/tools-panel/tools-panel-item/hook.ts b/packages/components/src/tools-panel/tools-panel-item/hook.ts
index fe415b8723a88..4026777296c10 100644
--- a/packages/components/src/tools-panel/tools-panel-item/hook.ts
+++ b/packages/components/src/tools-panel/tools-panel-item/hook.ts
@@ -125,17 +125,11 @@ export function useToolsPanelItem(
 	const isRegistered = menuItems?.[ menuGroup ]?.[ label ] !== undefined;
 
 	const isValueSet = hasValue();
-	const wasValueSet = usePrevious( isValueSet );
-	const newValueSet = isValueSet && ! wasValueSet;
-
-	// Notify the panel when an item's value has been set.
-	useEffect( () => {
-		if ( ! newValueSet ) {
-			return;
-		}
-
-		flagItemCustomization( label, menuGroup );
-	}, [ newValueSet, menuGroup, label, flagItemCustomization ] );
+	// Notify the panel when an item's value has changed.
+	useEffect(
+		() => flagItemCustomization( isValueSet, label, menuGroup ),
+		[ isValueSet, menuGroup, label, flagItemCustomization ]
+	);
 
 	// Determine if the panel item's corresponding menu is being toggled and
 	// trigger appropriate callback if it is.
diff --git a/packages/components/src/tools-panel/tools-panel/hook.ts b/packages/components/src/tools-panel/tools-panel/hook.ts
index 8a38a15084b33..60c0c9ae91127 100644
--- a/packages/components/src/tools-panel/tools-panel/hook.ts
+++ b/packages/components/src/tools-panel/tools-panel/hook.ts
@@ -210,13 +210,17 @@ export function useToolsPanel(
 	// separately to optional items and have different display states,
 	// we need to update that when their value is customized.
 	const flagItemCustomization = useCallback(
-		( label: string, group: ToolsPanelMenuItemKey = 'default' ) => {
+		(
+			value: boolean,
+			label: string,
+			group: ToolsPanelMenuItemKey = 'default'
+		) => {
 			setMenuItems( ( items ) => {
 				const newState = {
 					...items,
 					[ group ]: {
 						...items[ group ],
-						[ label ]: true,
+						[ label ]: value,
 					},
 				};
 				return newState;
diff --git a/packages/components/src/tools-panel/types.ts b/packages/components/src/tools-panel/types.ts
index 9f4fc78bea46a..e8e2f950de9a3 100644
--- a/packages/components/src/tools-panel/types.ts
+++ b/packages/components/src/tools-panel/types.ts
@@ -176,6 +176,7 @@ export type ToolsPanelContext = {
 	registerResetAllFilter: ( filter: ResetAllFilter ) => void;
 	deregisterResetAllFilter: ( filter: ResetAllFilter ) => void;
 	flagItemCustomization: (
+		value: boolean,
 		label: string,
 		group?: ToolsPanelMenuItemKey
 	) => void;