diff --git a/src/components/views/spaces/SpacePanel.tsx b/src/components/views/spaces/SpacePanel.tsx
index 895859b271b2..5035bb5b9ebe 100644
--- a/src/components/views/spaces/SpacePanel.tsx
+++ b/src/components/views/spaces/SpacePanel.tsx
@@ -1,5 +1,5 @@
 /*
-Copyright 2021 - 2022 The Matrix.org Foundation C.I.C.
+Copyright 2021 - 2023 The Matrix.org Foundation C.I.C.
 
 Licensed under the Apache License, Version 2.0 (the "License");
 you may not use this file except in compliance with the License.
@@ -60,7 +60,7 @@ import SettingsStore from "../../../settings/SettingsStore";
 import { SettingLevel } from "../../../settings/SettingLevel";
 import UIStore from "../../../stores/UIStore";
 import QuickSettingsButton from "./QuickSettingsButton";
-import { useSettingValue } from "../../../hooks/useSettings";
+import { useSetting, useSettingValue } from "../../../hooks/useSettings";
 import UserMenu from "../../structures/UserMenu";
 import IndicatorScrollbar from "../../structures/IndicatorScrollbar";
 import { IS_MAC, Key } from "../../../Keyboard";
@@ -329,12 +329,15 @@ const InnerSpacePanel = React.memo<IInnerSpacePanelProps>(
 );
 
 const SpacePanel = () => {
-    const [isPanelCollapsed, setPanelCollapsed] = useState(true);
-    const ref = useRef<HTMLDivElement>();
+    const [isPanelCollapsed, setPanelCollapsed] = useSetting<boolean>("space_panel_collapsed");
+
+    const ref = useRef<HTMLDivElement>(null);
     useLayoutEffect(() => {
+        if (!ref.current) return;
+
         UIStore.instance.trackElementDimensions("SpacePanel", ref.current);
         return () => UIStore.instance.stopTrackingElementDimensions("SpacePanel");
-    }, []);
+    }, [ ref ]);
 
     useDispatcher(defaultDispatcher, (payload: ActionPayload) => {
         if (payload.action === Action.ToggleSpacePanel) {
@@ -359,6 +362,7 @@ const SpacePanel = () => {
                         <UserMenu isPanelCollapsed={isPanelCollapsed}>
                             <AccessibleTooltipButton
                                 className={classNames("mx_SpacePanel_toggleCollapse", { expanded: !isPanelCollapsed })}
+                                data-testid="collapse-space-panel-button"
                                 onClick={() => setPanelCollapsed(!isPanelCollapsed)}
                                 title={isPanelCollapsed ? _t("Expand") : _t("Collapse")}
                                 tooltip={
diff --git a/src/settings/Settings.tsx b/src/settings/Settings.tsx
index bfd40e96ce1c..4830a6697977 100644
--- a/src/settings/Settings.tsx
+++ b/src/settings/Settings.tsx
@@ -768,6 +768,11 @@ export const SETTINGS: { [setting: string]: ISetting } = {
         supportedLevels: [SettingLevel.ACCOUNT],
         default: [], // list of room IDs, most recent first
     },
+    "space_panel_collapsed": {
+        // not really a setting
+        supportedLevels: LEVELS_DEVICE_ONLY_SETTINGS,
+        default: true,
+    },
     "room_directory_servers": {
         supportedLevels: [SettingLevel.ACCOUNT],
         default: [],
diff --git a/test/components/views/spaces/SpacePanel-test.tsx b/test/components/views/spaces/SpacePanel-test.tsx
index a84868b46025..419d02ee0854 100644
--- a/test/components/views/spaces/SpacePanel-test.tsx
+++ b/test/components/views/spaces/SpacePanel-test.tsx
@@ -1,5 +1,5 @@
 /*
-Copyright 2022 The Matrix.org Foundation C.I.C.
+Copyright 2023 The Matrix.org Foundation C.I.C.
 
 Licensed under the Apache License, Version 2.0 (the "License");
 you may not use this file except in compliance with the License.
@@ -15,17 +15,16 @@ limitations under the License.
 */
 
 import React from "react";
-import { render, screen, fireEvent } from "@testing-library/react";
+import { render, screen, fireEvent, cleanup } from "@testing-library/react";
 import { mocked } from "jest-mock";
-import { MatrixClient } from "matrix-js-sdk/src/matrix";
 
 import UnwrappedSpacePanel from "../../../../src/components/views/spaces/SpacePanel";
-import { MatrixClientPeg } from "../../../../src/MatrixClientPeg";
 import { SpaceKey } from "../../../../src/stores/spaces";
 import { shouldShowComponent } from "../../../../src/customisations/helpers/UIComponents";
 import { UIComponent } from "../../../../src/settings/UIFeature";
-import { wrapInSdkContext } from "../../../test-utils";
+import { stubClient, wrapInSdkContext } from "../../../test-utils";
 import { SdkContextClass } from "../../../../src/contexts/SDKContext";
+import AbstractLocalStorageSettingsHandler from "../../../../src/settings/handlers/AbstractLocalStorageSettingsHandler";
 
 jest.mock("../../../../src/stores/spaces/SpaceStore", () => {
     // eslint-disable-next-line @typescript-eslint/no-var-requires
@@ -45,16 +44,31 @@ jest.mock("../../../../src/customisations/helpers/UIComponents", () => ({
     shouldShowComponent: jest.fn(),
 }));
 
+// function mockLocalStorage(): Storage {
+//     const storage = new Map<string, string>();
+
+//     return {
+//         length: 0,
+//         getItem: (key: string): string | null => {
+//             if (!storage.has(key)) {
+//                 console.debug("Missing key: " + key);
+//                 return null;
+//             }
+//             console.debug("Found key: " + key + "=" + storage.get(key)!);
+//             return storage.get(key)!;
+//         },
+//         setItem: (key, value) => {
+//             console.debug(`Setting key ${key}=${value}`);
+//             storage.set(key, value);
+//         },
+//     } as Storage;
+// }
+
 describe("<SpacePanel />", () => {
-    const mockClient = {
-        getUserId: jest.fn().mockReturnValue("@test:test"),
-        isGuest: jest.fn(),
-        getAccountData: jest.fn(),
-    } as unknown as MatrixClient;
     const SpacePanel = wrapInSdkContext(UnwrappedSpacePanel, SdkContextClass.instance);
 
     beforeAll(() => {
-        jest.spyOn(MatrixClientPeg, "get").mockReturnValue(mockClient);
+        stubClient();
     });
 
     beforeEach(() => {
@@ -80,4 +94,34 @@ describe("<SpacePanel />", () => {
             screen.getByTestId("create-space-button");
         });
     });
+
+    describe("collapsing", () => {
+        const clickCollapse = () => fireEvent.click(screen.getByTestId("collapse-space-panel-button"));
+
+        beforeEach(() => {
+            localStorage.clear();
+            AbstractLocalStorageSettingsHandler.clear();
+        });
+
+        it("should expand", () => {
+            const res = render(<SpacePanel />);
+            const panel = res.baseElement.querySelector(".mx_SpacePanel");
+            expect(panel).toHaveClass("collapsed");
+
+            clickCollapse();
+            expect(panel).not.toHaveClass("collapsed");
+        });
+
+        it("should remember its collapsed state", () => {
+            // Render a panel and expand it
+            render(<SpacePanel />);
+            clickCollapse();
+            cleanup();
+
+            // Re-render
+            const res = render(<SpacePanel />);
+            const newPanel = res.baseElement.querySelector(".mx_SpacePanel");
+            expect(newPanel).not.toHaveClass("collapsed");
+        });
+    });
 });