diff --git a/functional/test_external_ref.py b/functional/test_external_ref.py
new file mode 100644
index 0000000..2601ca7
--- /dev/null
+++ b/functional/test_external_ref.py
@@ -0,0 +1,83 @@
+#    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
+
+
+class ExternalReferencesTest(functional_base.FunctionalTestsBase):
+
+    TEMPLATE = '''
+heat_template_version: 2016-10-14
+resources:
+  test1:
+    type: OS::Heat::TestResource
+'''
+    TEMPLATE_WITH_EX_REF = '''
+heat_template_version: 2016-10-14
+resources:
+  test1:
+    type: OS::Heat::TestResource
+    external_id: foobar
+outputs:
+  str:
+    value: {get_resource: test1}
+'''
+
+    def test_create_with_external_ref(self):
+        stack_name = self._stack_rand_name()
+        stack_identifier = self.stack_create(
+            stack_name=stack_name,
+            template=self.TEMPLATE_WITH_EX_REF,
+            files={},
+            disable_rollback=True,
+            parameters={},
+            environment={}
+        )
+
+        stack = self.client.stacks.get(stack_identifier)
+
+        self._wait_for_stack_status(stack_identifier, 'CREATE_COMPLETE')
+        expected_resources = {'test1': 'OS::Heat::TestResource'}
+        self.assertEqual(expected_resources,
+                         self.list_resources(stack_identifier))
+        stack = self.client.stacks.get(stack_identifier)
+        self.assertEqual(
+            [{'description': 'No description given',
+              'output_key': 'str',
+              'output_value': 'foobar'}], stack.outputs)
+
+    def test_update_with_external_ref(self):
+        stack_name = self._stack_rand_name()
+        stack_identifier = self.stack_create(
+            stack_name=stack_name,
+            template=self.TEMPLATE,
+            files={},
+            disable_rollback=True,
+            parameters={},
+            environment={}
+        )
+        stack = self.client.stacks.get(stack_identifier)
+
+        self._wait_for_stack_status(stack_identifier, 'CREATE_COMPLETE')
+        expected_resources = {'test1': 'OS::Heat::TestResource'}
+        self.assertEqual(expected_resources,
+                         self.list_resources(stack_identifier))
+        stack = self.client.stacks.get(stack_identifier)
+        self.assertEqual([], stack.outputs)
+
+        stack_name = stack_identifier.split('/')[0]
+        kwargs = {'stack_id': stack_identifier, 'stack_name': stack_name,
+                  'template': self.TEMPLATE_WITH_EX_REF, 'files': {},
+                  'disable_rollback': True, 'parameters': {}, 'environment': {}
+                  }
+        self.client.stacks.update(**kwargs)
+        self._wait_for_stack_status(stack_identifier, 'UPDATE_FAILED')