diff --git a/contracts/ibc2/schema/raw/query.json b/contracts/ibc2/schema/raw/query.json
index 60e28f8dde..57f0db2569 100644
--- a/contracts/ibc2/schema/raw/query.json
+++ b/contracts/ibc2/schema/raw/query.json
@@ -14,6 +14,19 @@
         }
       },
       "additionalProperties": false
+    },
+    {
+      "type": "object",
+      "required": [
+        "query_timeout_counter"
+      ],
+      "properties": {
+        "query_timeout_counter": {
+          "type": "object",
+          "additionalProperties": false
+        }
+      },
+      "additionalProperties": false
     }
   ]
 }
diff --git a/contracts/ibc2/src/contract.rs b/contracts/ibc2/src/contract.rs
index b935466d53..a403f9ad8d 100644
--- a/contracts/ibc2/src/contract.rs
+++ b/contracts/ibc2/src/contract.rs
@@ -9,6 +9,7 @@ use serde::{Deserialize, Serialize};
 #[derive(Default, Serialize, Deserialize, Clone, Debug, PartialEq, Eq, JsonSchema)]
 pub struct State {
     ibc2_packet_receive_counter: u32,
+    ibc2_timeout_counter: u32,
 }
 
 #[cw_serde]
@@ -16,6 +17,8 @@ pub struct State {
 pub enum QueryMsg {
     #[returns(State)]
     QueryState {},
+    #[returns(u32)]
+    QueryTimeoutCounter {},
 }
 
 const STATE_KEY: &[u8] = b"state";
@@ -43,6 +46,14 @@ pub fn query(deps: Deps, _env: Env, msg: QueryMsg) -> StdResult<QueryResponse> {
                 .ok_or_else(|| StdError::generic_err("State not found."))?;
             Ok(Binary::from(data))
         }
+        QueryMsg::QueryTimeoutCounter {} => {
+            let data = deps
+                .storage
+                .get(STATE_KEY)
+                .ok_or_else(|| StdError::generic_err("State not found."))?;
+            let state: State = from_json(data)?;
+            Ok(to_json_vec(&state.ibc2_timeout_counter)?.into())
+        }
     }
 }
 
@@ -61,6 +72,29 @@ pub fn ibc2_packet_receive(
         STATE_KEY,
         &to_json_vec(&State {
             ibc2_packet_receive_counter: state.ibc2_packet_receive_counter + 1,
+            ibc2_timeout_counter: state.ibc2_timeout_counter,
+        })?,
+    );
+
+    Ok(IbcReceiveResponse::new([1, 2, 3]))
+}
+
+#[entry_point]
+pub fn ibc2_timeout(
+    deps: DepsMut,
+    _env: Env,
+    _msg: Ibc2PacketReceiveMsg,
+) -> StdResult<IbcReceiveResponse> {
+    let data = deps
+        .storage
+        .get(STATE_KEY)
+        .ok_or_else(|| StdError::generic_err("State not found."))?;
+    let state: State = from_json(data)?;
+    deps.storage.set(
+        STATE_KEY,
+        &to_json_vec(&State {
+            ibc2_packet_receive_counter: state.ibc2_packet_receive_counter,
+            ibc2_timeout_counter: state.ibc2_timeout_counter + 1,
         })?,
     );
 
diff --git a/contracts/ibc2/tests/integration.rs b/contracts/ibc2/tests/integration.rs
index 8b13789179..3b9b915e2a 100644
--- a/contracts/ibc2/tests/integration.rs
+++ b/contracts/ibc2/tests/integration.rs
@@ -1 +1,32 @@
+use cosmwasm_std::testing::{mock_dependencies, mock_env, mock_info};
+use cosmwasm_std::{
+    from_binary, Empty, Ibc2PacketReceiveMsg, IbcReceiveResponse, Response, StdError,
+};
 
+use crate::contract::{ibc2_packet_receive, ibc2_timeout, instantiate, query};
+use crate::contract::{QueryMsg, State};
+
+#[test]
+fn test_ibc2_timeout() {
+    let mut deps = mock_dependencies();
+    let env = mock_env();
+    let info = mock_info("sender", &[]);
+
+    // Instantiate the contract
+    let msg = Empty {};
+    let res = instantiate(deps.as_mut(), env.clone(), info, msg).unwrap();
+    assert_eq!(res, Response::new());
+
+    // Call ibc2_timeout multiple times and verify the timeout counter increments correctly
+    let msg = Ibc2PacketReceiveMsg::default();
+    for i in 1..=3 {
+        let res: IbcReceiveResponse =
+            ibc2_timeout(deps.as_mut(), env.clone(), msg.clone()).unwrap();
+        assert_eq!(res, IbcReceiveResponse::new([1, 2, 3]));
+
+        let query_msg = QueryMsg::QueryTimeoutCounter {};
+        let query_res = query(deps.as_ref(), env.clone(), query_msg).unwrap();
+        let timeout_counter: u32 = from_binary(&query_res).unwrap();
+        assert_eq!(timeout_counter, i);
+    }
+}