diff --git a/pydata_sphinx_theme/__init__.py b/pydata_sphinx_theme/__init__.py
index 19a5a3aaa..3cd067c29 100644
--- a/pydata_sphinx_theme/__init__.py
+++ b/pydata_sphinx_theme/__init__.py
@@ -99,13 +99,13 @@ def generate_toc_html(kind="html"):
 
         # Add toc-hN + visible classes
         def add_header_level_recursive(ul, level):
+            if ul is None:
+                return
             if level <= (context["theme_show_toc_level"] + 1):
                 ul["class"] = ul.get("class", []) + ["visible"]
             for li in ul("li", recursive=False):
                 li["class"] = li.get("class", []) + [f"toc-h{level}"]
-                ul = li.find("ul", recursive=False)
-                if ul:
-                    add_header_level_recursive(ul, level + 1)
+                add_header_level_recursive(li.find("ul", recursive=False), level + 1)
 
         add_header_level_recursive(soup.find("ul"), 1)
 
diff --git a/tests/sites/test_included_toc/conf.py b/tests/sites/test_included_toc/conf.py
new file mode 100644
index 000000000..a788bae46
--- /dev/null
+++ b/tests/sites/test_included_toc/conf.py
@@ -0,0 +1,13 @@
+# -- Project information -----------------------------------------------------
+
+project = "Test"
+copyright = "Test"
+author = "Test"
+
+# -- General configuration ---------------------------------------------------
+
+master_doc = "index"
+
+# -- Options for HTML output -------------------------------------------------
+
+html_theme = "pydata_sphinx_theme"
diff --git a/tests/sites/test_included_toc/included-page.rst b/tests/sites/test_included_toc/included-page.rst
new file mode 100644
index 000000000..f8059d601
--- /dev/null
+++ b/tests/sites/test_included_toc/included-page.rst
@@ -0,0 +1,3 @@
+##########
+Test page
+##########
diff --git a/tests/sites/test_included_toc/index.rst b/tests/sites/test_included_toc/index.rst
new file mode 100644
index 000000000..835e503a2
--- /dev/null
+++ b/tests/sites/test_included_toc/index.rst
@@ -0,0 +1,8 @@
+########################
+ABC
+########################
+
+Test Content
+
+.. include:: toc-extension.include.rst
+
diff --git a/tests/sites/test_included_toc/toc-extension.include.rst b/tests/sites/test_included_toc/toc-extension.include.rst
new file mode 100644
index 000000000..60ed2bd3e
--- /dev/null
+++ b/tests/sites/test_included_toc/toc-extension.include.rst
@@ -0,0 +1,5 @@
+.. toctree::
+    :hidden:
+    :maxdepth: 2
+
+    included-page
diff --git a/tests/test_build.py b/tests/test_build.py
index be461fa81..4157e030b 100644
--- a/tests/test_build.py
+++ b/tests/test_build.py
@@ -191,3 +191,16 @@ def test_sidebars_level2(sphinx_build_factory, file_regression):
     # Sidebar structure
     sidebar = subindex_html.select("nav#bd-docs-nav")[0]
     file_regression.check(sidebar.prettify(), extension=".html")
+
+
+def test_included_toc(sphinx_build_factory):
+    """Test that Sphinx project containing TOC (.. toctree::) included
+    via .. include:: can be successfully built.
+    """
+    # Regression test for bug resolved in #347.
+    # Tests mainly makes sure that the sphinx_build.build() does not raise exception.
+    # https://github.com/pydata/pydata-sphinx-theme/pull/347
+
+    sphinx_build = sphinx_build_factory("test_included_toc").build()
+    included_page_html = sphinx_build.html_tree("included-page.html")
+    assert included_page_html is not None