diff --git a/common/test.py b/common/test.py
index 6a237f2..1721697 100644
--- a/common/test.py
+++ b/common/test.py
@@ -307,3 +307,23 @@
         self._wait_for_stack_status(
             stack_identifier, 'DELETE_COMPLETE',
             success_on_not_found=True)
+
+    def update_stack(self, stack_identifier, template, environment=None,
+                     files=None):
+        env = environment or {}
+        env_files = files or {}
+        stack_name = stack_identifier.split('/')[0]
+        self.client.stacks.update(
+            stack_id=stack_identifier,
+            stack_name=stack_name,
+            template=template,
+            files=env_files,
+            disable_rollback=True,
+            parameters={},
+            environment=env
+        )
+        self._wait_for_stack_status(stack_identifier, 'UPDATE_COMPLETE')
+
+    def list_resources(self, stack_identifier):
+        resources = self.client.resources.list(stack_identifier)
+        return dict((r.resource_name, r.resource_type) for r in resources)
diff --git a/functional/test_update.py b/functional/test_update.py
index 8cfb5c3..dcba97d 100644
--- a/functional/test_update.py
+++ b/functional/test_update.py
@@ -35,27 +35,28 @@
     type: OS::Heat::RandomString
 '''
 
+    provider_template = '''
+heat_template_version: 2013-05-23
+resources:
+  random1:
+    type: My::RandomString
+'''
+
+    provider_group_template = '''
+heat_template_version: 2013-05-23
+resources:
+  random_group:
+    type: OS::Heat::ResourceGroup
+    properties:
+      count: 2
+      resource_def:
+        type: My::RandomString
+'''
+
     def setUp(self):
         super(UpdateStackTest, self).setUp()
         self.client = self.orchestration_client
 
-    def update_stack(self, stack_identifier, template):
-        stack_name = stack_identifier.split('/')[0]
-        self.client.stacks.update(
-            stack_id=stack_identifier,
-            stack_name=stack_name,
-            template=template,
-            files={},
-            disable_rollback=True,
-            parameters={},
-            environment={}
-        )
-        self._wait_for_stack_status(stack_identifier, 'UPDATE_COMPLETE')
-
-    def list_resources(self, stack_identifier):
-        resources = self.client.resources.list(stack_identifier)
-        return dict((r.resource_name, r.resource_type) for r in resources)
-
     def test_stack_update_nochange(self):
         stack_name = self._stack_rand_name()
         self.client.stacks.create(
@@ -114,3 +115,140 @@
         self.update_stack(stack_identifier, self.template)
         self.assertEqual(initial_resources,
                          self.list_resources(stack_identifier))
+
+    def test_stack_update_provider(self):
+        stack_name = self._stack_rand_name()
+        files = {'provider.yaml': self.template}
+        env = {'resource_registry':
+               {'My::RandomString': 'provider.yaml'}}
+
+        self.client.stacks.create(
+            stack_name=stack_name,
+            template=self.provider_template,
+            files=files,
+            disable_rollback=True,
+            parameters={},
+            environment=env
+        )
+        self.addCleanup(self.client.stacks.delete, stack_name)
+
+        stack = self.client.stacks.get(stack_name)
+        stack_identifier = '%s/%s' % (stack_name, stack.id)
+
+        self._wait_for_stack_status(stack_identifier, 'CREATE_COMPLETE')
+        initial_resources = {'random1': 'My::RandomString'}
+        self.assertEqual(initial_resources,
+                         self.list_resources(stack_identifier))
+
+        # Prove the resource is backed by a nested stack, save the ID
+        rsrc = self.client.resources.get(stack_identifier, 'random1')
+        nested_link = [l for l in rsrc.links if l['rel'] == 'nested']
+        nested_href = nested_link[0]['href']
+        nested_id = nested_href.split('/')[-1]
+        nested_identifier = '/'.join(nested_href.split('/')[-2:])
+        physical_resource_id = rsrc.physical_resource_id
+        self.assertEqual(physical_resource_id, nested_id)
+
+        # Then check the expected resources are in the nested stack
+        nested_resources = {'random1': 'OS::Heat::RandomString'}
+        self.assertEqual(nested_resources,
+                         self.list_resources(nested_identifier))
+
+        # Add one resource via a stack update by changing the nested stack
+        files['provider.yaml'] = self.update_template
+        self.update_stack(stack_identifier, self.provider_template,
+                          environment=env, files=files)
+        stack = self.client.stacks.get(stack_identifier)
+
+        # Parent resources should be unchanged and the nested stack
+        # should have been updated in-place without replacement
+        self.assertEqual(initial_resources,
+                         self.list_resources(stack_identifier))
+        rsrc = self.client.resources.get(stack_identifier, 'random1')
+        self.assertEqual(rsrc.physical_resource_id, nested_id)
+
+        # Then check the expected resources are in the nested stack
+        nested_resources = {'random1': 'OS::Heat::RandomString',
+                            'random2': 'OS::Heat::RandomString'}
+        self.assertEqual(nested_resources,
+                         self.list_resources(nested_identifier))
+
+    def test_stack_update_provider_group(self):
+        '''Test two-level nested update.'''
+        # Create a ResourceGroup (which creates a nested stack),
+        # containing provider resources (which create a nested
+        # stack), thus excercising an update which traverses
+        # two levels of nesting.
+        stack_name = self._stack_rand_name()
+        files = {'provider.yaml': self.template}
+        env = {'resource_registry':
+               {'My::RandomString': 'provider.yaml'}}
+
+        self.client.stacks.create(
+            stack_name=stack_name,
+            template=self.provider_group_template,
+            files=files,
+            disable_rollback=True,
+            parameters={},
+            environment=env
+        )
+        self.addCleanup(self.client.stacks.delete, stack_name)
+
+        stack = self.client.stacks.get(stack_name)
+        stack_identifier = '%s/%s' % (stack_name, stack.id)
+
+        self._wait_for_stack_status(stack_identifier, 'CREATE_COMPLETE')
+        initial_resources = {'random_group': 'OS::Heat::ResourceGroup'}
+        self.assertEqual(initial_resources,
+                         self.list_resources(stack_identifier))
+
+        # Prove the resource is backed by a nested stack, save the ID
+        rsrc = self.client.resources.get(stack_identifier, 'random_group')
+        physical_resource_id = rsrc.physical_resource_id
+
+        nested_stack = self.client.stacks.get(physical_resource_id)
+        nested_identifier = '%s/%s' % (nested_stack.stack_name,
+                                       nested_stack.id)
+        self.assertEqual(stack.id, nested_stack.parent)
+
+        # Then check the expected resources are in the nested stack
+        nested_resources = {'0': 'My::RandomString',
+                            '1': 'My::RandomString'}
+        self.assertEqual(nested_resources,
+                         self.list_resources(nested_identifier))
+
+        for n_rsrc in nested_resources:
+            rsrc = self.client.resources.get(nested_identifier, n_rsrc)
+            provider_stack = self.client.stacks.get(rsrc.physical_resource_id)
+            provider_identifier = '%s/%s' % (provider_stack.stack_name,
+                                             provider_stack.id)
+            provider_resources = {u'random1': u'OS::Heat::RandomString'}
+            self.assertEqual(provider_resources,
+                             self.list_resources(provider_identifier))
+
+        # Add one resource via a stack update by changing the nested stack
+        files['provider.yaml'] = self.update_template
+        self.update_stack(stack_identifier, self.provider_group_template,
+                          environment=env, files=files)
+        stack = self.client.stacks.get(stack_identifier)
+
+        # Parent resources should be unchanged and the nested stack
+        # should have been updated in-place without replacement
+        self.assertEqual(initial_resources,
+                         self.list_resources(stack_identifier))
+
+        # Resource group stack should also be unchanged (but updated)
+        nested_stack = self.client.stacks.get(nested_identifier)
+        self.assertEqual('UPDATE_COMPLETE', nested_stack.stack_status)
+        self.assertEqual(nested_resources,
+                         self.list_resources(nested_identifier))
+
+        for n_rsrc in nested_resources:
+            rsrc = self.client.resources.get(nested_identifier, n_rsrc)
+            provider_stack = self.client.stacks.get(rsrc.physical_resource_id)
+            provider_identifier = '%s/%s' % (provider_stack.stack_name,
+                                             provider_stack.id)
+            provider_resources = {'random1': 'OS::Heat::RandomString',
+                                  'random2': 'OS::Heat::RandomString'}
+            self.assertEqual(provider_resources,
+                             self.list_resources(provider_identifier))