diff --git a/tests/init.sh b/tests/init.sh
index c420e8c9f..2ec5fa1dd 100755
--- a/tests/init.sh
+++ b/tests/init.sh
@@ -3,7 +3,7 @@ source common/vars-and-functions.sh
 
 test -n "$TEST_ROOT"
 if test -d "$TEST_ROOT"; then
-    chmod -R u+w "$TEST_ROOT"
+    chmod -R u+rw "$TEST_ROOT"
     # We would delete any daemon socket, so let's stop the daemon first.
     killDaemon
     rm -rf "$TEST_ROOT"
diff --git a/tests/local.mk b/tests/local.mk
index 328f27e90..05894727c 100644
--- a/tests/local.mk
+++ b/tests/local.mk
@@ -124,7 +124,8 @@ nix_tests = \
   flakes/show.sh \
   impure-derivations.sh \
   path-from-hash-part.sh \
-  toString-path.sh
+  toString-path.sh \
+  overlay-local-store.sh
 
 ifeq ($(HAVE_LIBCPUID), 1)
 	nix_tests += compute-levels.sh
diff --git a/tests/overlay-local-store.sh b/tests/overlay-local-store.sh
new file mode 100644
index 000000000..6c0a5f96d
--- /dev/null
+++ b/tests/overlay-local-store.sh
@@ -0,0 +1,3 @@
+source common.sh
+
+exec unshare --mount --map-root-user overlay-local-store/inner.sh
diff --git a/tests/overlay-local-store/inner.sh b/tests/overlay-local-store/inner.sh
new file mode 100755
index 000000000..fb690a85f
--- /dev/null
+++ b/tests/overlay-local-store/inner.sh
@@ -0,0 +1,51 @@
+#!/usr/bin/env bash
+
+set -eu -o pipefail
+
+set -x
+
+source common.sh
+
+export NIX_CONFIG='build-users-group = '
+
+# Creating testing directories
+
+storeA="$TEST_ROOT/store_a"
+storeB="$TEST_ROOT/store_b?real=$TEST_ROOT/merged-store"
+storeBTop="$TEST_ROOT/store_b"
+
+mkdir -p "$TEST_ROOT"/{store_a,store_b,merged-store,workdir}
+
+# Mounting Overlay Store
+
+nix-store --store "$TEST_ROOT/store_a" --add dummy
+nix-store --store "$TEST_ROOT/store_b" --add dummy
+
+mount -t overlay overlay \
+  -o lowerdir="$TEST_ROOT/store_a/nix/store" \
+  -o upperdir="$TEST_ROOT/store_b/nix/store" \
+  -o workdir="$TEST_ROOT/workdir" \
+  "$TEST_ROOT/merged-store" || skipTest "overlayfs is not supported"
+
+path_a=$(nix-build '<nixpkgs>' -A signal-desktop --store "$storeA")
+
+# Checking for Path in store_a
+stat "$TEST_ROOT/store_a/$path_a"
+
+# Checking for Path in store_b
+expect 1 stat "$TEST_ROOT/store_b/$path_a"
+
+# Checking for Path in merged-store
+ls "$TEST_ROOT/merged-store/$(echo "$path_a" | sed 's|/nix/store/||g')"
+
+
+# Verifying path in store_a
+nix-store --verify-path --store "$storeA" "$path_a"
+
+# Verifiying path in merged-store (Should fail)
+expect 1 nix-store --verify-path --store "$storeB" "$path_a"
+
+# Verifying path in store_b (Should fail)
+expect 1 nix-store --verify-path --store "$storeBTop" "$path_a"
+
+path_b=$(nix-build '<nixpkgs>' -A signal-desktop --store "$storeB")