diff --git a/functional/test_conditions.py b/functional/test_conditions.py
new file mode 100644
index 0000000..d0f49a8
--- /dev/null
+++ b/functional/test_conditions.py
@@ -0,0 +1,131 @@
+#    Licensed under the Apache License, Version 2.0 (the "License"); you may
+#    not use this file except in compliance with the License. You may obtain
+#    a copy of the License at
+#
+#         http://www.apache.org/licenses/LICENSE-2.0
+#
+#    Unless required by applicable law or agreed to in writing, software
+#    distributed under the License is distributed on an "AS IS" BASIS, WITHOUT
+#    WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied. See the
+#    License for the specific language governing permissions and limitations
+#    under the License.
+
+from heat_integrationtests.functional import functional_base
+
+
+cfn_template = '''
+AWSTemplateFormatVersion: 2010-09-09
+Parameters:
+  env_type:
+    Default: test
+    Type: String
+    AllowedValues: [prod, test]
+Conditions:
+  Prod: {"Fn::Equals" : [{Ref: env_type}, "prod"]}
+Resources:
+  test_res:
+    Type: OS::Heat::TestResource
+    Properties:
+      value: test_res
+  prod_res:
+    Type: OS::Heat::TestResource
+    Properties:
+      value: prod_res
+    Condition: Prod
+'''
+
+hot_template = '''
+heat_template_version: 2016-10-14
+parameters:
+  env_type:
+    default: test
+    type: string
+    constraints:
+      - allowed_values: [prod, test]
+conditions:
+  prod: {equals : [{get_param: env_type}, "prod"]}
+resources:
+  test_res:
+    type: OS::Heat::TestResource
+    properties:
+      value: test_res
+  prod_res:
+    type: OS::Heat::TestResource
+    properties:
+      value: prod_res
+    condition: prod
+'''
+
+
+class CreateUpdateResConditionTest(functional_base.FunctionalTestsBase):
+
+    def setUp(self):
+        super(CreateUpdateResConditionTest, self).setUp()
+
+    def res_assert_for_prod(self, resources):
+        self.assertEqual(2, len(resources))
+        res_names = [res.resource_name for res in resources]
+        self.assertIn('prod_res', res_names)
+        self.assertIn('test_res', res_names)
+
+    def res_assert_for_test(self, resources):
+        self.assertEqual(1, len(resources))
+        res_names = [res.resource_name for res in resources]
+        self.assertIn('test_res', res_names)
+        self.assertNotIn('prod_res', res_names)
+
+    def test_stack_create_update_cfn_template_test_to_prod(self):
+        stack_identifier = self.stack_create(template=cfn_template)
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_test(resources)
+
+        parms = {'env_type': 'prod'}
+        self.update_stack(stack_identifier,
+                          template=cfn_template,
+                          parameters=parms)
+
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_prod(resources)
+
+    def test_stack_create_update_cfn_template_prod_to_test(self):
+        parms = {'env_type': 'prod'}
+        stack_identifier = self.stack_create(template=cfn_template,
+                                             parameters=parms)
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_prod(resources)
+
+        parms = {'env_type': 'test'}
+        self.update_stack(stack_identifier,
+                          template=cfn_template,
+                          parameters=parms)
+
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_test(resources)
+
+    def test_stack_create_update_hot_template_test_to_prod(self):
+        stack_identifier = self.stack_create(template=hot_template)
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_test(resources)
+
+        parms = {'env_type': 'prod'}
+        self.update_stack(stack_identifier,
+                          template=hot_template,
+                          parameters=parms)
+
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_prod(resources)
+
+    def test_stack_create_update_hot_template_prod_to_test(self):
+        parms = {'env_type': 'prod'}
+        stack_identifier = self.stack_create(template=hot_template,
+                                             parameters=parms)
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_prod(resources)
+
+        parms = {'env_type': 'test'}
+        self.update_stack(stack_identifier,
+                          template=hot_template,
+                          parameters=parms)
+
+        resources = self.client.resources.list(stack_identifier)
+        self.res_assert_for_test(resources)