diff --git a/README.rst b/README.rst
index 31180572..e19a8598 100644
--- a/README.rst
+++ b/README.rst
@@ -45,6 +45,9 @@ What tools are there?
 
 * element-info : Extract information about elements.
 
+* tests/run_functests.sh
+  This runs a set of functional tests for diskimage-builder.
+
 Why?
 ----
 
diff --git a/bin/disk-image-create b/bin/disk-image-create
index 8a9ee7f1..3b9e5c5f 100755
--- a/bin/disk-image-create
+++ b/bin/disk-image-create
@@ -205,6 +205,7 @@ fi
 mk_build_dir
 create_base
 # This variable needs to be propagated into the chroot
+mkdir -p $TMP_HOOKS_PATH/environment.d
 echo "export DIB_DEFAULT_INSTALLTYPE=\"${DIB_DEFAULT_INSTALLTYPE}\"" > $TMP_HOOKS_PATH/environment.d/11-dib-install-type.bash
 run_d extra-data
 # Run pre-install scripts. These do things that prepare the chroot for package installs
diff --git a/tests/elements/fake-os/README.rst b/tests/elements/fake-os/README.rst
new file mode 100644
index 00000000..cd449c08
--- /dev/null
+++ b/tests/elements/fake-os/README.rst
@@ -0,0 +1,6 @@
+fake-os
+=======
+
+This is not the element you are looking for.
+
+This element does not provide an operating system, it provides a fake for testing purposes only.
diff --git a/tests/elements/fake-os/element-provides b/tests/elements/fake-os/element-provides
new file mode 100644
index 00000000..a72e0496
--- /dev/null
+++ b/tests/elements/fake-os/element-provides
@@ -0,0 +1 @@
+operating-system
diff --git a/tests/elements/fake-os/root.d/10-fake-os b/tests/elements/fake-os/root.d/10-fake-os
new file mode 100755
index 00000000..e522cb17
--- /dev/null
+++ b/tests/elements/fake-os/root.d/10-fake-os
@@ -0,0 +1,16 @@
+#!/bin/bash
+
+set -eux
+set -o pipefail
+
+sudo touch $TARGET_ROOT/fake-os
+
+sudo mkdir -p $TARGET_ROOT/etc
+sudo mkdir -p $TARGET_ROOT/mnt
+sudo mkdir -p $TARGET_ROOT/proc
+sudo mkdir -p $TARGET_ROOT/dev
+sudo mkdir -p $TARGET_ROOT/sys
+
+# We need some size so the mkfs does not fail when making an fs of size 0
+# We also need to account for the journal size on the FS
+dd if=/dev/zero of=$TARGET_ROOT/fake-data bs=1M count=42
diff --git a/tests/image_output_formats.bash b/tests/image_output_formats.bash
new file mode 100755
index 00000000..57ffa72e
--- /dev/null
+++ b/tests/image_output_formats.bash
@@ -0,0 +1,21 @@
+#!/bin/bash
+
+set -eux
+set -o pipefail
+
+source $(dirname $0)/test_functions.bash
+
+test_formats="tar raw qcow2"
+if [ -z "$(which qemu-img)" ]; then
+    echo "Warning: No qemu-img binary found, cowardly refusing to run tests."
+    exit 0
+fi
+
+for format in '' $test_formats; do
+    build_test_image $format
+    echo "Test passed for output formats '$format'."
+done
+
+combined_format=$(echo $test_formats | tr ' ' ',')
+build_test_image $combined_format
+echo "Test passed for output format '$combined_format'."
diff --git a/tests/run_functests.sh b/tests/run_functests.sh
new file mode 100755
index 00000000..d7fa3d08
--- /dev/null
+++ b/tests/run_functests.sh
@@ -0,0 +1,8 @@
+#!/bin/bash
+
+set -eux
+set -o pipefail
+
+$(dirname $0)/image_output_formats.bash
+
+echo "Tests passed!"
diff --git a/tests/test_functions.bash b/tests/test_functions.bash
new file mode 100644
index 00000000..f26d5c22
--- /dev/null
+++ b/tests/test_functions.bash
@@ -0,0 +1,34 @@
+export TEST_ELEMENTS=$(dirname $0)/elements
+export DIB_ELEMENTS=$(dirname $0)/../elements
+export DIB_CMD=$(dirname $0)/../bin/disk-image-create
+
+function build_test_image() {
+    format=${1:-}
+
+    if [ -n "$format" ]; then
+        type_arg="-t $format"
+    else
+        type_arg=
+        format="qcow2"
+    fi
+    dest_dir=$(mktemp -d)
+
+    trap "rm -rf $dest_dir" EXIT
+
+    ELEMENTS_PATH=$DIB_ELEMENTS:$TEST_ELEMENTS \
+        $DIB_CMD $type_arg -o $dest_dir/image -n fake-os
+
+    format=$(echo $format | tr ',' ' ')
+    for format in $format; do
+        img_path="$dest_dir/image.$format"
+        if ! [ -f "$img_path" ]; then
+            echo "Error: No image with name $img_path found!"
+            exit 1
+        else
+            echo "Found image $img_path."
+        fi
+    done
+
+    trap EXIT
+    rm -rf $dest_dir
+}