diff --git a/cirq-core/cirq/transformers/optimize_for_target_gateset.py b/cirq-core/cirq/transformers/optimize_for_target_gateset.py
index d028366db14..5c71ec9c8ee 100644
--- a/cirq-core/cirq/transformers/optimize_for_target_gateset.py
+++ b/cirq-core/cirq/transformers/optimize_for_target_gateset.py
@@ -14,8 +14,9 @@
 
 """Transformers to rewrite a circuit using gates from a given target gateset."""
 
-from typing import Optional, Callable, TYPE_CHECKING
+from typing import Optional, Callable, Hashable, Sequence, TYPE_CHECKING
 
+from cirq import circuits
 from cirq.protocols import decompose_protocol as dp
 from cirq.transformers import transformer_api, transformer_primitives
 
@@ -38,6 +39,7 @@ def _decompose_operations_to_target_gateset(
     gateset: Optional['cirq.Gateset'] = None,
     decomposer: Callable[['cirq.Operation', int], dp.DecomposeResult] = lambda *_: NotImplemented,
     ignore_failures: bool = True,
+    tags_to_decompose: Sequence[Hashable] = (),
 ) -> 'cirq.Circuit':
     """Decomposes every operation to `gateset` using `cirq.decompose` and `decomposer`.
 
@@ -56,6 +58,8 @@ def _decompose_operations_to_target_gateset(
             - `None` or `NotImplemented` if does not know how to decompose a given `op`.
         ignore_failures: If set, operations that fail to convert are left unchanged. If not set,
             conversion failures raise a ValueError.
+        tags_to_decompose: `cirq.CircuitOperation`s tagged with any of `tags_to_decompose` will
+            be decomposed even if context.deep is True.
 
     Returns:
         An equivalent circuit containing gates accepted by `gateset`.
@@ -65,6 +69,13 @@ def _decompose_operations_to_target_gateset(
     """
 
     def map_func(op: 'cirq.Operation', moment_index: int):
+        if (
+            context
+            and context.deep
+            and isinstance(op.untagged, circuits.CircuitOperation)
+            and set(op.tags).isdisjoint(tags_to_decompose)
+        ):
+            return op
         return dp.decompose(
             op,
             intercepting_decomposer=lambda o: decomposer(o, moment_index),
@@ -77,7 +88,10 @@ def map_func(op: 'cirq.Operation', moment_index: int):
         )
 
     return transformer_primitives.map_operations_and_unroll(
-        circuit, map_func, tags_to_ignore=context.tags_to_ignore if context else ()
+        circuit,
+        map_func,
+        tags_to_ignore=context.tags_to_ignore if context else (),
+        deep=context.deep if context else False,
     ).unfreeze(copy=False)
 
 
@@ -122,6 +136,7 @@ def optimize_for_target_gateset(
         gateset=gateset,
         decomposer=gateset.decompose_to_target_gateset,
         ignore_failures=ignore_failures,
+        tags_to_decompose=(gateset._intermediate_result_tag,),
     )
 
     for transformer in gateset.postprocess_transformers:
diff --git a/cirq-core/cirq/transformers/optimize_for_target_gateset_test.py b/cirq-core/cirq/transformers/optimize_for_target_gateset_test.py
index e923ceb60db..0efb950fa7a 100644
--- a/cirq-core/cirq/transformers/optimize_for_target_gateset_test.py
+++ b/cirq-core/cirq/transformers/optimize_for_target_gateset_test.py
@@ -196,3 +196,53 @@ def test_optimize_for_target_gateset():
         _ = cirq.optimize_for_target_gateset(
             c_orig, gateset=gateset, context=context, ignore_failures=False
         )
+
+
+def test_optimize_for_target_gateset_deep():
+    q0, q1 = cirq.LineQubit.range(2)
+    c_nested = cirq.FrozenCircuit(cirq.CX(q0, q1))
+    c_orig = cirq.Circuit(
+        cirq.CircuitOperation(
+            cirq.FrozenCircuit(cirq.H(q0), cirq.CircuitOperation(c_nested).repeat(3))
+        ).repeat(5)
+    )
+    c_expected = cirq.Circuit(
+        cirq.CircuitOperation(
+            cirq.FrozenCircuit(
+                cirq.single_qubit_matrix_to_phxz(cirq.unitary(cirq.H(q0))).on(q0),
+                cirq.CircuitOperation(
+                    cirq.FrozenCircuit(
+                        cirq.MatrixGate(c_nested.unitary(qubit_order=[q0, q1]), name="M").on(q0, q1)
+                    )
+                ).repeat(3),
+            )
+        ).repeat(5)
+    )
+    gateset = MatrixGateTargetGateset()
+    context = cirq.TransformerContext(deep=True)
+    c_new = cirq.optimize_for_target_gateset(c_orig, gateset=gateset, context=context)
+    cirq.testing.assert_circuits_with_terminal_measurements_are_equivalent(c_new, c_expected)
+    cirq.testing.assert_has_diagram(
+        c_orig,
+        '''
+      [           [ 0: ───@─── ]             ]
+      [ 0: ───H───[       │    ]──────────── ]
+0: ───[           [ 1: ───X─── ](loops=3)    ]────────────
+      [           │                          ]
+      [ 1: ───────#2──────────────────────── ](loops=5)
+      │
+1: ───#2──────────────────────────────────────────────────
+''',
+    )
+    cirq.testing.assert_has_diagram(
+        c_new,
+        '''
+      [                                 [ 0: ───M[1]─── ]             ]
+      [ 0: ───PhXZ(a=-0.5,x=0.5,z=-1)───[       │       ]──────────── ]
+0: ───[                                 [ 1: ───M[2]─── ](loops=3)    ]────────────
+      [                                 │                             ]
+      [ 1: ─────────────────────────────#2─────────────────────────── ](loops=5)
+      │
+1: ───#2───────────────────────────────────────────────────────────────────────────
+''',
+    )