diff --git a/app/controllers/projects/milestones_controller.rb b/app/controllers/projects/milestones_controller.rb
index c5a044541f1..2494b56981d 100644
--- a/app/controllers/projects/milestones_controller.rb
+++ b/app/controllers/projects/milestones_controller.rb
@@ -1,4 +1,5 @@
 class Projects::MilestonesController < Projects::ApplicationController
+  include Gitlab::Utils::StrongMemoize
   include MilestoneActions
 
   before_action :check_issuables_available!
@@ -103,7 +104,7 @@ class Projects::MilestonesController < Projects::ApplicationController
   protected
 
   def milestones
-    @milestones ||= begin
+    strong_memoize(:milestones) do
       MilestonesFinder.new(search_params).execute
     end
   end
@@ -121,10 +122,10 @@ class Projects::MilestonesController < Projects::ApplicationController
   end
 
   def search_params
-    if @project.group && can?(current_user, :read_group, @project.group)
-      group = @project.group
+    if request.format.json? && @project.group && can?(current_user, :read_group, @project.group)
+      groups = @project.group.self_and_ancestors
     end
 
-    params.permit(:state).merge(project_ids: @project.id, group_ids: group&.id)
+    params.permit(:state).merge(project_ids: @project.id, group_ids: groups&.select(:id))
   end
 end
diff --git a/app/services/projects/autocomplete_service.rb b/app/services/projects/autocomplete_service.rb
index 346971138b1..3e38a8a12d4 100644
--- a/app/services/projects/autocomplete_service.rb
+++ b/app/services/projects/autocomplete_service.rb
@@ -11,7 +11,7 @@ module Projects
         order: { due_date: :asc, title: :asc }
       }
 
-      finder_params[:group_ids] = [@project.group.id] if @project.group
+      finder_params[:group_ids] = @project.group.self_and_ancestors.select(:id) if @project.group
 
       MilestonesFinder.new(finder_params).execute.select([:iid, :title])
     end
diff --git a/changelogs/unreleased/36862-subgroup-milestones.yml b/changelogs/unreleased/36862-subgroup-milestones.yml
new file mode 100644
index 00000000000..98b9dc41cb1
--- /dev/null
+++ b/changelogs/unreleased/36862-subgroup-milestones.yml
@@ -0,0 +1,5 @@
+---
+title: Include milestones from parent groups when assigning a milestone to an issue or merge request
+merge_request:
+author:
+type: changed
diff --git a/spec/controllers/projects/milestones_controller_spec.rb b/spec/controllers/projects/milestones_controller_spec.rb
index 548c5ef36e7..02b30f9bc6d 100644
--- a/spec/controllers/projects/milestones_controller_spec.rb
+++ b/spec/controllers/projects/milestones_controller_spec.rb
@@ -57,19 +57,36 @@ describe Projects::MilestonesController do
     context "as json" do
       let!(:group) { create(:group, :public) }
       let!(:group_milestone) { create(:milestone, group: group) }
-      let!(:group_member) { create(:group_member, group: group, user: user) }
 
-      before do
-        project.update(namespace: group)
-        get :index, namespace_id: project.namespace.id, project_id: project.id, format: :json
+      context 'with a single group ancestor' do
+        before do
+          project.update(namespace: group)
+          get :index, namespace_id: project.namespace.id, project_id: project.id, format: :json
+        end
+
+        it "queries projects milestones and groups milestones" do
+          milestones = assigns(:milestones)
+
+          expect(milestones.count).to eq(2)
+          expect(milestones).to match_array([milestone, group_milestone])
+        end
       end
 
-      it "queries projects milestones and groups milestones" do
-        milestones = assigns(:milestones)
+      context 'with nested groups', :nested_groups do
+        let!(:subgroup) { create(:group, :public, parent: group) }
+        let!(:subgroup_milestone) { create(:milestone, group: subgroup) }
 
-        expect(milestones.count).to eq(2)
-        expect(milestones.where(project_id: nil).first).to eq(group_milestone)
-        expect(milestones.where(group_id: nil).first).to eq(milestone)
+        before do
+          project.update(namespace: subgroup)
+          get :index, namespace_id: project.namespace.id, project_id: project.id, format: :json
+        end
+
+        it "queries projects milestones and all ancestors milestones" do
+          milestones = assigns(:milestones)
+
+          expect(milestones.count).to eq(3)
+          expect(milestones).to match_array([milestone, group_milestone, subgroup_milestone])
+        end
       end
     end
   end
diff --git a/spec/services/projects/autocomplete_service_spec.rb b/spec/services/projects/autocomplete_service_spec.rb
index f7ff8b80bd7..6fd73a50511 100644
--- a/spec/services/projects/autocomplete_service_spec.rb
+++ b/spec/services/projects/autocomplete_service_spec.rb
@@ -115,5 +115,20 @@ describe Projects::AutocompleteService do
 
       expect(milestone_titles).to eq([group_milestone2.title, group_milestone1.title])
     end
+
+    context 'with nested groups', :nested_groups do
+      let(:subgroup) { create(:group, :public, parent: group) }
+      let!(:subgroup_milestone) { create(:milestone, group: subgroup) }
+
+      before do
+        project.update(namespace: subgroup)
+      end
+
+      it 'includes project milestones and all acestors milestones' do
+        expect(milestone_titles).to match_array(
+          [project_milestone.title, group_milestone2.title, group_milestone1.title, subgroup_milestone.title]
+        )
+      end
+    end
   end
 end