diff --git a/CHANGELOG.md b/CHANGELOG.md
index 369f94ff..0fa9716d 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -28,6 +28,8 @@ Types of changes:
 
 ### Fixed
 
+- Fixed the way how depth is calculated when external gates are defined with unrolling a QASM module. ([#198](https://github.com/qBraid/pyqasm/pull/198))
+
 ### Dependencies
 
 ### Other
diff --git a/src/pyqasm/modules/base.py b/src/pyqasm/modules/base.py
index 5b6890cb..e33df77f 100644
--- a/src/pyqasm/modules/base.py
+++ b/src/pyqasm/modules/base.py
@@ -55,6 +55,7 @@ def __init__(self, name: str, program: Program):
         self._has_barriers: Optional[bool] = None
         self._validated_program = False
         self._unrolled_ast = Program(statements=[])
+        self._external_gates: list[str] = []
 
     @property
     def name(self) -> str:
@@ -278,7 +279,10 @@ def depth(self):
         qasm_module = self.copy()
         qasm_module._qubit_depths = {}
         qasm_module._clbit_depths = {}
-        qasm_module.unroll()
+
+        # Unroll using any external gates that have been recorded for this
+        # module
+        qasm_module.unroll(external_gates=self._external_gates)
 
         max_depth = 0
         max_qubit_depth, max_clbit_depth = 0, 0
@@ -539,6 +543,10 @@ def unroll(self, **kwargs):
             kwargs = {}
         try:
             self.num_qubits, self.num_clbits = 0, 0
+            if ext_gates := kwargs.get("external_gates"):
+                self._external_gates = ext_gates
+            else:
+                self._external_gates = []
             visitor = QasmVisitor(module=self, **kwargs)
             self.accept(visitor)
         except (ValidationError, UnrollError) as err:
diff --git a/src/pyqasm/visitor.py b/src/pyqasm/visitor.py
index bb24ef47..a454b3a3 100644
--- a/src/pyqasm/visitor.py
+++ b/src/pyqasm/visitor.py
@@ -88,6 +88,7 @@ def __init__(
         self._unroll_barriers: bool = unroll_barriers
         self._curr_scope: int = 0
         self._label_scope_level: dict[int, set] = {self._curr_scope: set()}
+        self._recording_ext_gate_depth = False
 
         self._init_utilities()
 
@@ -750,22 +751,23 @@ def _update_qubit_depth_for_gate(
         Returns:
             None
         """
-        for qubit_subset in all_targets:
-            max_involved_depth = 0
-            for qubit in qubit_subset + ctrls:
-                assert isinstance(qubit.indices[0], list)
-                _qid_ = qubit.indices[0][0]
-                qubit_id = Qasm3ExprEvaluator.evaluate_expression(_qid_)[0]  # type: ignore
-                qubit_node = self._module._qubit_depths[(qubit.name.name, qubit_id)]
-                qubit_node.num_gates += 1
-                max_involved_depth = max(max_involved_depth, qubit_node.depth + 1)
-
-            for qubit in qubit_subset + ctrls:
-                assert isinstance(qubit.indices[0], list)
-                _qid_ = qubit.indices[0][0]
-                qubit_id = Qasm3ExprEvaluator.evaluate_expression(_qid_)[0]  # type: ignore
-                qubit_node = self._module._qubit_depths[(qubit.name.name, qubit_id)]
-                qubit_node.depth = max_involved_depth
+        if not self._recording_ext_gate_depth:
+            for qubit_subset in all_targets:
+                max_involved_depth = 0
+                for qubit in qubit_subset + ctrls:
+                    assert isinstance(qubit.indices[0], list)
+                    _qid_ = qubit.indices[0][0]
+                    qubit_id = Qasm3ExprEvaluator.evaluate_expression(_qid_)[0]  # type: ignore
+                    qubit_node = self._module._qubit_depths[(qubit.name.name, qubit_id)]
+                    qubit_node.num_gates += 1
+                    max_involved_depth = max(max_involved_depth, qubit_node.depth + 1)
+
+                for qubit in qubit_subset + ctrls:
+                    assert isinstance(qubit.indices[0], list)
+                    _qid_ = qubit.indices[0][0]
+                    qubit_id = Qasm3ExprEvaluator.evaluate_expression(_qid_)[0]  # type: ignore
+                    qubit_node = self._module._qubit_depths[(qubit.name.name, qubit_id)]
+                    qubit_node.depth = max_involved_depth
 
     def _visit_basic_gate_operation(  # pylint: disable=too-many-locals
         self,
@@ -913,6 +915,11 @@ def _visit_custom_gate_operation(
             gate_definition_ops.reverse()
 
         self._push_context(Context.GATE)
+
+        # Pause recording the depth of new gates because we are processing the
+        # definition of a custom gate here - handle the depth separately afterwards
+        self._recording_ext_gate_depth = gate_name in self._external_gates
+
         result = []
         for gate_op in gate_definition_ops:
             if isinstance(gate_op, (qasm3_ast.QuantumGate, qasm3_ast.QuantumPhase)):
@@ -942,6 +949,11 @@ def _visit_custom_gate_operation(
                     span=gate_op.span,
                 )
 
+        # Update the depth only once for the entire custom gate
+        if self._recording_ext_gate_depth:
+            self._recording_ext_gate_depth = False
+            self._update_qubit_depth_for_gate([op_qubits], ctrls)
+
         self._restore_context()
 
         if self._check_only:
@@ -969,7 +981,6 @@ def _visit_external_gate_operation(
         Returns:
             list[qasm3_ast.QuantumGate]: The quantum gate that was collected.
         """
-
         logger.debug("Visiting external gate operation '%s'", str(operation))
         gate_name: str = operation.name.name
         if ctrls is None:
diff --git a/tests/qasm3/test_depth.py b/tests/qasm3/test_depth.py
index aac75b0e..487c1f2c 100644
--- a/tests/qasm3/test_depth.py
+++ b/tests/qasm3/test_depth.py
@@ -51,25 +51,63 @@ def test_gate_depth():
     assert result.depth() == 5
 
 
-@pytest.mark.skip(reason="Not implemented computing depth of external gates")
-def test_gate_depth_external_function():
-    qasm3_string = """
-    OPENQASM 3;
-    include "stdgates.inc";
+QASM3_STRING_1 = """
+OPENQASM 3;
+include "stdgates.inc";
 
-    gate my_gate() q {
-        h q;
-        x q;
-    }
+gate my_gate() q {
+    h q;
+    x q;
+}
 
-    qubit q;
-    my_gate() q;
-    """
-    result = loads(qasm3_string)
+qubit q;
+my_gate() q;
+"""
+
+QASM3_STRING_2 = """
+OPENQASM 3.0;
+include "stdgates.inc";
+gate my_gate q1, q2 {
+  h q1;
+  cx q1, q2;
+  h q2;
+}
+qubit[2] q;
+my_gate q[0], q[1];
+"""
+
+QASM3_STRING_3 = """
+OPENQASM 3.0;
+include "stdgates.inc";
+gate my_gate q1, q2 { }
+qubit[2] q;
+my_gate q[0], q[1];
+"""
+
+
+@pytest.mark.parametrize(
+    ["input_qasm_str", "first_depth", "second_depth", "num_qubits"],
+    [
+        (QASM3_STRING_1, 1, 2, 1),
+        (QASM3_STRING_2, 1, 3, 2),
+        (QASM3_STRING_3, 1, 0, 2),
+    ],
+)
+def test_gate_depth_external_function(input_qasm_str, first_depth, second_depth, num_qubits):
+    result = loads(input_qasm_str)
     result.unroll(external_gates=["my_gate"])
-    assert result.num_qubits == 1
+    assert result.num_qubits == num_qubits
+
+    for i in range(num_qubits):
+        assert result._qubit_depths[("q", i)].num_gates == 1
+
     assert result.num_clbits == 0
-    assert result.depth() == 1
+    assert result.depth() == first_depth
+
+    # Check that unrolling with no external_gates flushes the internally stored
+    # external gates and influences the depth calculation
+    result.unroll()
+    assert result.depth() == second_depth
 
 
 def test_pow_gate_depth():