BUG: groupby.apply incorrectly dropping nan

doc/source/whatsnew/v1.3.3.rst

@@ -17,7 +17,7 @@ Fixed regressions
 - Fixed regression in :class:`DataFrame` constructor failing to broadcast for defined :class:`Index` and len one list of :class:`Timestamp` (:issue:`42810`)
 - Performance regression in :meth:`core.window.ewm.ExponentialMovingWindow.mean` (:issue:`42333`)
 - Fixed regression in :meth:`.GroupBy.agg` incorrectly raising in some cases (:issue:`42390`)
--
+- Fixed regression in :meth:`.GroupBy.apply` where ``nan`` values were dropped even with ``dropna=False`` (:issue:`43205`)
 
 .. ---------------------------------------------------------------------------
 

pandas/core/groupby/groupby.py

@@ -1010,7 +1010,11 @@ def reset_identity(values):
 
         if not not_indexed_same:
             result = concat(values, axis=self.axis)
-            ax = self.filter(lambda x: True).axes[self.axis]
+            ax = (
+                self.filter(lambda x: True).axes[self.axis]
+                if self.dropna
+                else self._selected_obj._get_axis(self.axis)
+            )
 
             # this is a very unfortunate situation
             # we can't use reindex to restore the original order

pandas/tests/groupby/test_apply.py

@@ -1150,3 +1150,17 @@ def test_doctest_example2():
         {"B": [1.0, 0.0], "C": [2.0, 0.0]}, index=Index(["a", "b"], name="A")
     )
     tm.assert_frame_equal(result, expected)
+
+
+@pytest.mark.parametrize("dropna", [True, False])
+def test_apply_dropna_with_indexed_same2(dropna):
+    # GH#43205
+    df = DataFrame(
+        {
+            "a": [1, 2, 3, 4, 5, 6, 7, 8, 9],
+            "b": [1, np.nan, 1, np.nan, 2, 1, 2, np.nan, 1],
+        }
+    )
+    result = df.groupby("b", dropna=dropna).apply(lambda x: x)
+    expected = df.dropna() if dropna else df
+    tm.assert_frame_equal(result, expected)