diff --git a/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/layout.tsx b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/layout.tsx
new file mode 100644
index 000000000000..ace0c2f086b7
--- /dev/null
+++ b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/layout.tsx
@@ -0,0 +1,12 @@
+import { PropsWithChildren } from 'react';
+
+export const dynamic = 'force-dynamic';
+
+export default function Layout({ children }: PropsWithChildren<{}>) {
+  return (
+    <div>
+      <p>Layout</p>
+      {children}
+    </div>
+  );
+}
diff --git a/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/layout.tsx b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/layout.tsx
new file mode 100644
index 000000000000..ace0c2f086b7
--- /dev/null
+++ b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/layout.tsx
@@ -0,0 +1,12 @@
+import { PropsWithChildren } from 'react';
+
+export const dynamic = 'force-dynamic';
+
+export default function Layout({ children }: PropsWithChildren<{}>) {
+  return (
+    <div>
+      <p>Layout</p>
+      {children}
+    </div>
+  );
+}
diff --git a/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/page.tsx b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/page.tsx
new file mode 100644
index 000000000000..8077c14d23ca
--- /dev/null
+++ b/packages/e2e-tests/test-applications/nextjs-app-dir/app/(nested-layout)/nested-layout/page.tsx
@@ -0,0 +1,11 @@
+export const dynamic = 'force-dynamic';
+
+export default function Page() {
+  return <p>Hello World!</p>;
+}
+
+export async function generateMetadata() {
+  return {
+    title: 'I am generated metadata',
+  };
+}
diff --git a/packages/e2e-tests/test-applications/nextjs-app-dir/tests/connected-servercomponent-trace.test.ts b/packages/e2e-tests/test-applications/nextjs-app-dir/tests/connected-servercomponent-trace.test.ts
new file mode 100644
index 000000000000..4acc41814d3c
--- /dev/null
+++ b/packages/e2e-tests/test-applications/nextjs-app-dir/tests/connected-servercomponent-trace.test.ts
@@ -0,0 +1,50 @@
+import { expect, test } from '@playwright/test';
+import { waitForTransaction } from '../event-proxy-server';
+
+test('Will capture a connected trace for all server components and generation functions when visiting a page', async ({
+  page,
+}) => {
+  const someConnectedEvent = waitForTransaction('nextjs-13-app-dir', async transactionEvent => {
+    return (
+      transactionEvent?.transaction === 'Layout Server Component (/(nested-layout)/nested-layout)' ||
+      transactionEvent?.transaction === 'Layout Server Component (/(nested-layout))' ||
+      transactionEvent?.transaction === 'Page Server Component (/(nested-layout)/nested-layout)' ||
+      transactionEvent?.transaction === 'Page.generateMetadata (/(nested-layout)/nested-layout)'
+    );
+  });
+
+  const layout1Transaction = waitForTransaction('nextjs-13-app-dir', async transactionEvent => {
+    return (
+      transactionEvent?.transaction === 'Layout Server Component (/(nested-layout)/nested-layout)' &&
+      (await someConnectedEvent).contexts?.trace?.trace_id === transactionEvent.contexts?.trace?.trace_id
+    );
+  });
+
+  const layout2Transaction = waitForTransaction('nextjs-13-app-dir', async transactionEvent => {
+    return (
+      transactionEvent?.transaction === 'Layout Server Component (/(nested-layout))' &&
+      (await someConnectedEvent).contexts?.trace?.trace_id === transactionEvent.contexts?.trace?.trace_id
+    );
+  });
+
+  const pageTransaction = waitForTransaction('nextjs-13-app-dir', async transactionEvent => {
+    return (
+      transactionEvent?.transaction === 'Page Server Component (/(nested-layout)/nested-layout)' &&
+      (await someConnectedEvent).contexts?.trace?.trace_id === transactionEvent.contexts?.trace?.trace_id
+    );
+  });
+
+  const generateMetadataTransaction = waitForTransaction('nextjs-13-app-dir', async transactionEvent => {
+    return (
+      transactionEvent?.transaction === 'Page.generateMetadata (/(nested-layout)/nested-layout)' &&
+      (await someConnectedEvent).contexts?.trace?.trace_id === transactionEvent.contexts?.trace?.trace_id
+    );
+  });
+
+  await page.goto('/nested-layout');
+
+  expect(await layout1Transaction).toBeDefined();
+  expect(await layout2Transaction).toBeDefined();
+  expect(await pageTransaction).toBeDefined();
+  expect(await generateMetadataTransaction).toBeDefined();
+});
diff --git a/packages/nextjs/src/common/utils/commonObjectTracing.ts b/packages/nextjs/src/common/utils/commonObjectTracing.ts
new file mode 100644
index 000000000000..bb5cf130bab1
--- /dev/null
+++ b/packages/nextjs/src/common/utils/commonObjectTracing.ts
@@ -0,0 +1,23 @@
+import type { PropagationContext } from '@sentry/types';
+
+const commonMap = new WeakMap<object, PropagationContext>();
+
+/**
+ * Takes a shared (garbage collectable) object between resources, e.g. a headers object shared between Next.js server components and returns a common propagation context.
+ */
+export function commonObjectToPropagationContext(
+  commonObject: unknown,
+  propagationContext: PropagationContext,
+): PropagationContext {
+  if (typeof commonObject === 'object' && commonObject) {
+    const memoPropagationContext = commonMap.get(commonObject);
+    if (memoPropagationContext) {
+      return memoPropagationContext;
+    } else {
+      commonMap.set(commonObject, propagationContext);
+      return propagationContext;
+    }
+  } else {
+    return propagationContext;
+  }
+}
diff --git a/packages/nextjs/src/common/wrapGenerationFunctionWithSentry.ts b/packages/nextjs/src/common/wrapGenerationFunctionWithSentry.ts
index 5aa9c436beef..80f7d62cc447 100644
--- a/packages/nextjs/src/common/wrapGenerationFunctionWithSentry.ts
+++ b/packages/nextjs/src/common/wrapGenerationFunctionWithSentry.ts
@@ -3,6 +3,7 @@ import {
   captureException,
   continueTrace,
   getCurrentHub,
+  getCurrentScope,
   runWithAsyncContext,
   trace,
 } from '@sentry/core';
@@ -10,6 +11,7 @@ import type { WebFetchHeaders } from '@sentry/types';
 import { winterCGHeadersToDict } from '@sentry/utils';
 
 import type { GenerationFunctionContext } from '../common/types';
+import { commonObjectToPropagationContext } from './utils/commonObjectTracing';
 
 /**
  * Wraps a generation function (e.g. generateMetadata) with Sentry error and performance instrumentation.
@@ -45,6 +47,19 @@ export function wrapGenerationFunctionWithSentry<F extends (...args: any[]) => a
           baggage: headers?.get('baggage'),
           sentryTrace: headers?.get('sentry-trace') ?? undefined,
         });
+
+        // If there is no incoming trace, we are setting the transaction context to one that is shared between all other
+        // transactions for this request. We do this based on the `headers` object, which is the same for all components.
+        const propagationContext = getCurrentScope().getPropagationContext();
+        if (!transactionContext.traceId && !transactionContext.parentSpanId) {
+          const { traceId: commonTraceId, spanId: commonSpanId } = commonObjectToPropagationContext(
+            headers,
+            propagationContext,
+          );
+          transactionContext.traceId = commonTraceId;
+          transactionContext.parentSpanId = commonSpanId;
+        }
+
         return trace(
           {
             op: 'function.nextjs',
diff --git a/packages/nextjs/src/common/wrapServerComponentWithSentry.ts b/packages/nextjs/src/common/wrapServerComponentWithSentry.ts
index d7ff31f3afd9..8312121ae12c 100644
--- a/packages/nextjs/src/common/wrapServerComponentWithSentry.ts
+++ b/packages/nextjs/src/common/wrapServerComponentWithSentry.ts
@@ -1,8 +1,16 @@
-import { addTracingExtensions, captureException, continueTrace, runWithAsyncContext, trace } from '@sentry/core';
+import {
+  addTracingExtensions,
+  captureException,
+  continueTrace,
+  getCurrentScope,
+  runWithAsyncContext,
+  trace,
+} from '@sentry/core';
 import { winterCGHeadersToDict } from '@sentry/utils';
 
 import { isNotFoundNavigationError, isRedirectNavigationError } from '../common/nextNavigationErrorUtils';
 import type { ServerComponentContext } from '../common/types';
+import { commonObjectToPropagationContext } from './utils/commonObjectTracing';
 import { flushQueue } from './utils/responseEnd';
 
 /**
@@ -33,6 +41,18 @@ export function wrapServerComponentWithSentry<F extends (...args: any[]) => any>
           baggage: context.baggageHeader ?? completeHeadersDict['baggage'],
         });
 
+        // If there is no incoming trace, we are setting the transaction context to one that is shared between all other
+        // transactions for this request. We do this based on the `headers` object, which is the same for all components.
+        const propagationContext = getCurrentScope().getPropagationContext();
+        if (!transactionContext.traceId && !transactionContext.parentSpanId) {
+          const { traceId: commonTraceId, spanId: commonSpanId } = commonObjectToPropagationContext(
+            context.headers,
+            propagationContext,
+          );
+          transactionContext.traceId = commonTraceId;
+          transactionContext.parentSpanId = commonSpanId;
+        }
+
         const res = trace(
           {
             ...transactionContext,
diff --git a/packages/nextjs/src/config/loaders/wrappingLoader.ts b/packages/nextjs/src/config/loaders/wrappingLoader.ts
index a6b852af8b28..3d2fd7c80bb4 100644
--- a/packages/nextjs/src/config/loaders/wrappingLoader.ts
+++ b/packages/nextjs/src/config/loaders/wrappingLoader.ts
@@ -157,8 +157,6 @@ export default function wrappingLoader(
       .replace(/(.*)/, '/$1')
       // Pull off the file name
       .replace(/\/[^/]+\.(js|ts|jsx|tsx)$/, '')
-      // Remove routing groups: https://beta.nextjs.org/docs/routing/defining-routes#example-creating-multiple-root-layouts
-      .replace(/\/(\(.*?\)\/)+/g, '/')
       // In case all of the above have left us with an empty string (which will happen if we're dealing with the
       // homepage), sub back in the root route
       .replace(/^$/, '/');