diff --git a/test/blackbox-tests/test-cases/pkg/toolchain-installation.t b/test/blackbox-tests/test-cases/pkg/toolchain-installation.t
new file mode 100644
index 00000000000..976f50cdd85
--- /dev/null
+++ b/test/blackbox-tests/test-cases/pkg/toolchain-installation.t
@@ -0,0 +1,95 @@
+Test the installation of toolchains package by building and installing
+a mock compiler package using dune's toolchain mechanism.
+
+  $ . ./helpers.sh
+  $ make_lockdir
+
+  $ mkdir fake-compiler
+
+A configure script for the fake compiler that writes the prefix path
+to a file so the fake compiler can be installed to the specified
+location, testing that dune respects the "prefix" variable for
+toolchain packages.
+  $ cat > fake-compiler/configure << 'EOF'
+  > #!/bin/sh
+  > PREFIX=$1
+  > echo $PREFIX > prefix.txt
+  > EOF
+  $ chmod a+x fake-compiler/configure
+
+A shell script that will be installed to the toolchain bin directory
+and masquerade as the compiler.
+  $ mkdir -p fake-compiler/target/bin
+  $ cat > fake-compiler/target/bin/ocamlc << EOF
+  > #!/bin/sh
+  > echo "Hello from fake ocamlc!"
+  > EOF
+  $ chmod a+x fake-compiler/target/bin/ocamlc
+
+The makefile for the fake compiler copies the fake ocamlc script into
+the appropriate location, respecting the DESTDIR variable.
+  $ cat > fake-compiler/Makefile << 'EOF'
+  > prefix := $(shell cat prefix.txt)
+  > target := $(DESTDIR)$(prefix)
+  > install:
+  > 	@mkdir -p $(target)
+  > 	@cp -r target/* $(target)
+  > EOF
+
+Lockfile for the fake compiler package:
+  $ cat > dune.lock/ocaml-base-compiler.pkg << EOF
+  > (version 1)
+  > 
+  > (build
+  >  (run ./configure %{prefix}))
+  > 
+  > (install
+  >  (run %{make} install))
+  > 
+  > (source
+  >  (copy $PWD/fake-compiler))
+  > EOF
+
+  $ cat > dune-project << EOF
+  > (lang dune 3.16)
+  > 
+  > (package
+  >  (name foo)
+  >  (depends ocaml-base-compiler))
+  > EOF
+
+  $ cat > dune << EOF
+  > (executable
+  >  (public_name foo))
+  > EOF
+
+  $ cat > foo.ml << EOF
+  > print_endline "Hello, World!"
+  > EOF
+
+Toolchain directory names contain a hash of some of the fields from
+the package's lockfile. This lockfile includes the expanded $PWD
+variable which includes the test sandbox path which is different each
+time the tests runs. Strip the hash out of the toolchain directory
+name so the output is consistent across test runs.
+  $ remove_hash() {
+  >   sed 's/\(ocaml-base-compiler.1-\)[^/]*/\1HASH/'
+  > }
+
+Attempt to build the project. This will fail due to the fake compiler
+but the fake compiler will end up installed as a toolchain package.
+  $ XDG_CACHE_HOME=$PWD/fake-cache DUNE_CONFIG__TOOLCHAINS_ENABLED=true dune build 2>&1 | remove_hash
+  Error: Failed to parse the output of
+  '$TESTCASE_ROOT/fake-cache/dune/toolchains/ocaml-base-compiler.1-HASH/target/bin/ocamlc
+  -config':
+  Unrecognized line: "Hello from fake ocamlc!"
+
+Enumerate the contents of the fake toolchains directory:
+  $ find fake-cache | sort | remove_hash
+  fake-cache
+  fake-cache/dune
+  fake-cache/dune/toolchains
+  fake-cache/dune/toolchains/ocaml-base-compiler.1-HASH
+  fake-cache/dune/toolchains/ocaml-base-compiler.1-HASH/target
+  fake-cache/dune/toolchains/ocaml-base-compiler.1-HASH/target/bin
+  fake-cache/dune/toolchains/ocaml-base-compiler.1-HASH/target/bin/ocamlc