diff --git a/esphome/automation.py b/esphome/automation.py
index 4a2c10cb52d..32f423d2a34 100644
--- a/esphome/automation.py
+++ b/esphome/automation.py
@@ -906,6 +906,21 @@ async def while_action_to_code(
     return var
 
 
+def _shadow_iteration(args: TemplateArgsType) -> TemplateArgsType:
+    """Rename an inherited `iteration` so the inner repeat's own counter can shadow it."""
+    names = {name for _, name in args}
+    renamed: TemplateArgsType = []
+    for type_, name in args:
+        if name == "iteration":
+            depth = 1
+            while f"iteration_{depth}" in names:
+                depth += 1
+            name = f"iteration_{depth}"
+            names.add(name)
+        renamed.append((type_, name))
+    return renamed
+
+
 @register_action(
     "repeat",
     RepeatAction,
@@ -929,7 +944,7 @@ async def repeat_action_to_code(
     actions = await build_action_list(
         config[CONF_THEN],
         cg.TemplateArguments(cg.uint32, *template_arg.args),
-        [(cg.uint32, "iteration"), *args],
+        [(cg.uint32, "iteration"), *_shadow_iteration(args)],
     )
     for action in actions:
         cg.add(var.add_then_action(action))
diff --git a/tests/components/script/common.yaml b/tests/components/script/common.yaml
index 6b7290277a1..f8396e9648f 100644
--- a/tests/components/script/common.yaml
+++ b/tests/components/script/common.yaml
@@ -23,6 +23,10 @@ esphome:
           then:
             - logger.log: my_script is running
 
+globals:
+  - id: nested_total
+    type: int
+
 script:
   - id: my_script
     mode: single
@@ -71,3 +75,16 @@ script:
           count: 5
           then:
             - logger.log: looping!
+      - repeat:
+          count: 2
+          then:
+            - repeat:
+                count: 2
+                then:
+                  - delay: 200ms
+                  - lambda: 'ESP_LOGD("main", "inner iteration %u", iteration);'
+                  - globals.set:
+                      id: nested_total
+                      value: !lambda |-
+                        int total = iteration;
+                        return total;
diff --git a/tests/unit_tests/test_automation.py b/tests/unit_tests/test_automation.py
index fe0b1b02ed1..b56d0a2920e 100644
--- a/tests/unit_tests/test_automation.py
+++ b/tests/unit_tests/test_automation.py
@@ -13,9 +13,13 @@ from esphome.automation import (
     ApplyCondition,
     ApplyField,
     CallbackAutomation,
+    LambdaAction,
+    RepeatAction,
     TriggerForwarder,
     TriggerOnFalseForwarder,
     TriggerOnTrueForwarder,
+    _shadow_iteration,
+    build_action,
     build_callback_automation,
     build_callback_automations,
     build_parent_callback_automation,
@@ -41,7 +45,13 @@ from esphome.automation import (
 )
 import esphome.codegen as cg
 import esphome.config_validation as cv
-from esphome.const import CONF_AUTOMATION_ID, CONF_ID, CONF_THEN
+from esphome.const import (
+    CONF_AUTOMATION_ID,
+    CONF_COUNT,
+    CONF_ID,
+    CONF_THEN,
+    CONF_TYPE_ID,
+)
 from esphome.core import CORE, ID, KEY_CORE, KEY_TARGET_PLATFORM, EsphomeError, Lambda
 from esphome.cpp_generator import MockObj, RawExpression
 from esphome.types import ConfigType
@@ -1545,3 +1555,56 @@ async def test_build_callback_automation_forwarder(mock_cg: MockCodegen) -> None
     assert str(mock_cg.add.call_args.args[0]) == (
         f"parent->add_cb(TriggerForwarder<bool>{{{NEW_OBJ}}})"
     )
+
+
+def test_shadow_iteration_leaves_other_names() -> None:
+    args = [(cg.std_string, "prefix"), (cg.uint32, "iteration_1")]
+    assert _shadow_iteration(args) == args
+
+
+def test_shadow_iteration_renames_inherited_counter() -> None:
+    assert _shadow_iteration([(cg.uint32, "iteration"), (cg.bool_, "x")]) == [
+        (cg.uint32, "iteration_1"),
+        (cg.bool_, "x"),
+    ]
+
+
+def test_shadow_iteration_picks_first_unused_suffix() -> None:
+    """A counter keeps its suffix at deeper levels; the new one takes the next free name."""
+    args = [
+        (cg.uint32, "iteration"),
+        (cg.uint32, "iteration_1"),
+        (cg.int_, "iteration_3"),
+    ]
+    assert _shadow_iteration(args) == [
+        (cg.uint32, "iteration_2"),
+        (cg.uint32, "iteration_1"),
+        (cg.int_, "iteration_3"),
+    ]
+
+
+def _repeat_conf(id_: str, then: list[ConfigType]) -> ConfigType:
+    return {
+        "repeat": {CONF_COUNT: 2, CONF_THEN: then},
+        CONF_TYPE_ID: ID(id_, is_declaration=True, type=RepeatAction),
+    }
+
+
+@pytest.mark.asyncio
+async def test_nested_repeat_lambda_parameters_are_distinct() -> None:
+    """Each repeat level adds its own `iteration`; inherited ones are renamed, not duplicated."""
+    CORE.config = {}
+    log = {
+        "lambda": Lambda('ESP_LOGD("t", "%u", iteration);'),
+        CONF_TYPE_ID: ID("log_action", is_declaration=True, type=LambdaAction),
+    }
+    conf = _repeat_conf(
+        "outer", [_repeat_conf("middle", [_repeat_conf("inner", [log])])]
+    )
+    await build_action(conf, cg.TemplateArguments(cg.uint8), [(cg.uint8, "level")])
+    text = CORE.cpp_main_section
+    assert (
+        "(uint32_t iteration, uint32_t iteration_2, uint32_t iteration_1, uint8_t level)"
+        in text
+    )
+    assert "uint32_t iteration, uint32_t iteration)" not in text