>Hi Viv, I was trying to do all the event handling from within the user control class but I don't think its possible . What event of the panel would you put the code you suggested ?

You can handle everything in the user control event when it loses focus - just check the ContainsFocus property of the containing panel. If it is true that implies that another user control in the panel has focus so you should reset the color. If false then focus must be outside the user control collection and the user control should stay red.