diff --git a/packages/CarSystemUI/res/layout/sysui_overlay_window.xml b/packages/CarSystemUI/res/layout/sysui_overlay_window.xml
index e7295aa6383d0..2c9788955bfa4 100644
--- a/packages/CarSystemUI/res/layout/sysui_overlay_window.xml
+++ b/packages/CarSystemUI/res/layout/sysui_overlay_window.xml
@@ -25,8 +25,7 @@
     <ViewStub android:id="@+id/notification_panel_stub"
               android:layout_width="match_parent"
               android:layout_height="match_parent"
-              android:layout="@layout/notification_panel_container"
-              android:layout_marginBottom="@dimen/car_bottom_navigation_bar_height"/>
+              android:layout="@layout/notification_panel_container"/>
 
     <ViewStub android:id="@+id/keyguard_stub"
               android:layout_width="match_parent"
diff --git a/packages/CarSystemUI/src/com/android/systemui/car/notification/NotificationPanelViewController.java b/packages/CarSystemUI/src/com/android/systemui/car/notification/NotificationPanelViewController.java
index b647f13cbe1f9..4b660692cd8f0 100644
--- a/packages/CarSystemUI/src/com/android/systemui/car/notification/NotificationPanelViewController.java
+++ b/packages/CarSystemUI/src/com/android/systemui/car/notification/NotificationPanelViewController.java
@@ -32,6 +32,7 @@ import android.view.LayoutInflater;
 import android.view.MotionEvent;
 import android.view.View;
 import android.view.ViewGroup;
+import android.view.WindowInsets;
 
 import androidx.annotation.NonNull;
 import androidx.recyclerview.widget.RecyclerView;
@@ -82,7 +83,6 @@ public class NotificationPanelViewController extends OverlayPanelViewController
     private final StatusBarStateController mStatusBarStateController;
     private final boolean mEnableHeadsUpNotificationWhenNotificationShadeOpen;
     private final NotificationVisibilityLogger mNotificationVisibilityLogger;
-    private final int mNavBarHeight;
 
     private float mInitialBackgroundAlpha;
     private float mBackgroundAlphaDiff;
@@ -97,6 +97,7 @@ public class NotificationPanelViewController extends OverlayPanelViewController
     private boolean mNotificationListAtEndAtTimeOfTouch;
     private boolean mIsSwipingVerticallyToClose;
     private boolean mIsNotificationCardSwiping;
+    private boolean mImeVisible = false;
 
     private OnUnseenCountUpdateListener mUnseenCountUpdateListener;
 
@@ -139,8 +140,6 @@ public class NotificationPanelViewController extends OverlayPanelViewController
         mStatusBarStateController = statusBarStateController;
         mNotificationVisibilityLogger = notificationVisibilityLogger;
 
-        mNavBarHeight = mResources.getDimensionPixelSize(R.dimen.car_bottom_navigation_bar_height);
-
         mCommandQueue.addCallback(this);
 
         // Notification background setup.
@@ -189,19 +188,7 @@ public class NotificationPanelViewController extends OverlayPanelViewController
         if (mContext.getDisplayId() != displayId) {
             return;
         }
-        boolean isKeyboardVisible = (vis & InputMethodService.IME_VISIBLE) != 0;
-        int bottomMargin = isKeyboardVisible ? 0 : mNavBarHeight;
-        ViewGroup container = (ViewGroup) getLayout();
-        if (container == null) {
-            // Notification panel hasn't been inflated before. We shouldn't try to update the layout
-            // params.
-            return;
-        }
-
-        ViewGroup.MarginLayoutParams params =
-                (ViewGroup.MarginLayoutParams) container.getLayoutParams();
-        params.setMargins(params.leftMargin, params.topMargin, params.rightMargin, bottomMargin);
-        container.setLayoutParams(params);
+        mImeVisible = (vis & InputMethodService.IME_VISIBLE) != 0;
     }
 
     // OverlayViewController
@@ -229,7 +216,7 @@ public class NotificationPanelViewController extends OverlayPanelViewController
 
     @Override
     protected int getInsetTypesToFit() {
-        return 0;
+        return WindowInsets.Type.navigationBars();
     }
 
     @Override
@@ -237,6 +224,12 @@ public class NotificationPanelViewController extends OverlayPanelViewController
         return mEnableHeadsUpNotificationWhenNotificationShadeOpen;
     }
 
+    @Override
+    protected boolean shouldUseStableInsets() {
+        // When IME is visible, then the inset from the nav bar should not be applied.
+        return !mImeVisible;
+    }
+
     /** Reinflates the view. */
     public void reinflate() {
         ViewGroup container = (ViewGroup) getLayout();
diff --git a/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewController.java b/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewController.java
index 8adc1adcc41c4..6c3a6327d90c3 100644
--- a/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewController.java
+++ b/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewController.java
@@ -167,6 +167,19 @@ public class OverlayViewController {
         return true;
     }
 
+    /**
+     * Returns {@code true} if the window should use stable insets. Using stable insets means that
+     * even when system bars are temporarily not visible, inset from the system bars will still be
+     * applied.
+     *
+     * NOTE: When system bars are hidden in transient mode, insets from them will not be applied
+     * even when the system bars become visible. Setting the return value to {@true} here can
+     * prevent the OverlayView from overlapping with the system bars when that happens.
+     */
+    protected boolean shouldUseStableInsets() {
+        return false;
+    }
+
     /**
      * Returns the insets types to fit to the sysui overlay window when this
      * {@link OverlayViewController} is in the foreground.
diff --git a/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewGlobalStateController.java b/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewGlobalStateController.java
index c13e486f1c0e7..0da23605a2cf3 100644
--- a/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewGlobalStateController.java
+++ b/packages/CarSystemUI/src/com/android/systemui/car/window/OverlayViewGlobalStateController.java
@@ -108,6 +108,7 @@ public class OverlayViewGlobalStateController {
         if (mZOrderVisibleSortedMap.isEmpty()) {
             setWindowVisible(true);
         }
+
         if (!(viewController instanceof OverlayPanelViewController)) {
             inflateView(viewController);
         }
@@ -117,6 +118,7 @@ public class OverlayViewGlobalStateController {
         }
 
         updateInternalsWhenShowingView(viewController);
+        refreshUseStableInsets();
         refreshInsetTypesToFit();
         refreshWindowFocus();
         refreshNavigationBarVisibility();
@@ -190,6 +192,7 @@ public class OverlayViewGlobalStateController {
 
         mZOrderVisibleSortedMap.remove(mZOrderMap.get(viewController));
         refreshHighestZOrderWhenHidingView(viewController);
+        refreshUseStableInsets();
         refreshInsetTypesToFit();
         refreshWindowFocus();
         refreshNavigationBarVisibility();
@@ -247,6 +250,11 @@ public class OverlayViewGlobalStateController {
         setWindowFocusable(mHighestZOrder == null ? false : mHighestZOrder.shouldFocusWindow());
     }
 
+    private void refreshUseStableInsets() {
+        mSystemUIOverlayWindowController.setUsingStableInsets(
+                mHighestZOrder == null ? false : mHighestZOrder.shouldUseStableInsets());
+    }
+
     private void refreshInsetTypesToFit() {
         if (mZOrderVisibleSortedMap.isEmpty()) {
             setFitInsetsTypes(statusBars());
diff --git a/packages/CarSystemUI/src/com/android/systemui/car/window/SystemUIOverlayWindowController.java b/packages/CarSystemUI/src/com/android/systemui/car/window/SystemUIOverlayWindowController.java
index 887329359b05c..b22de84eb0386 100644
--- a/packages/CarSystemUI/src/com/android/systemui/car/window/SystemUIOverlayWindowController.java
+++ b/packages/CarSystemUI/src/com/android/systemui/car/window/SystemUIOverlayWindowController.java
@@ -53,6 +53,7 @@ public class SystemUIOverlayWindowController implements
     private boolean mIsAttached = false;
     private boolean mVisible = false;
     private boolean mFocusable = false;
+    private boolean mUsingStableInsets = false;
 
     @Inject
     public SystemUIOverlayWindowController(
@@ -115,6 +116,7 @@ public class SystemUIOverlayWindowController implements
     /** Sets the types of insets to fit. Note: This should be rarely used. */
     public void setFitInsetsTypes(@WindowInsets.Type.InsetsType int types) {
         mLpChanged.setFitInsetsTypes(types);
+        mLpChanged.setFitInsetsIgnoringVisibility(mUsingStableInsets);
         updateWindow();
     }
 
@@ -159,6 +161,10 @@ public class SystemUIOverlayWindowController implements
         return mFocusable;
     }
 
+    protected void setUsingStableInsets(boolean useStableInsets) {
+        mUsingStableInsets = useStableInsets;
+    }
+
     private void updateWindow() {
         if (mLp != null && mLp.copyFrom(mLpChanged) != 0) {
             if (isAttached()) {