diff --git a/tests/test_cases/case_1/pytest.ini b/tests/test_cases/case_1/pytest.ini
new file mode 100644
index 0000000..a6a7656
--- /dev/null
+++ b/tests/test_cases/case_1/pytest.ini
@@ -0,0 +1,3 @@
+[pytest-watch]
+
+verbose = True
diff --git a/tests/test_cases/case_2/pytest.ini b/tests/test_cases/case_2/pytest.ini
new file mode 100644
index 0000000..c787fbb
--- /dev/null
+++ b/tests/test_cases/case_2/pytest.ini
@@ -0,0 +1,5 @@
+[pytest-watch]
+
+version = False
+ignore = dir_b
+help = True
\ No newline at end of file
diff --git a/tests/test_cases/case_4/pytest.ini b/tests/test_cases/case_4/pytest.ini
new file mode 100644
index 0000000..e2ac50f
--- /dev/null
+++ b/tests/test_cases/case_4/pytest.ini
@@ -0,0 +1,3 @@
+[pytest]
+
+verbose = True
diff --git a/tests/test_cases/case_5/pytest.ini b/tests/test_cases/case_5/pytest.ini
new file mode 100644
index 0000000..02d4f55
--- /dev/null
+++ b/tests/test_cases/case_5/pytest.ini
@@ -0,0 +1,5 @@
+[pytest-watch]
+
+directories = dir_c,dir_d
+
+<directories> = dir_c,dir_d
\ No newline at end of file
diff --git a/tests/test_config.py b/tests/test_config.py
new file mode 100644
index 0000000..ca61b75
--- /dev/null
+++ b/tests/test_config.py
@@ -0,0 +1,203 @@
+import pytest
+from pytest_watch.config import CollectConfig, merge_config
+from pytest_watch.util import silence
+
+import os
+import tempfile
+import shutil
+
+
+class patched_chdir(object):
+
+    """Just like chdir, but can be used in with - sets back the old path at exit"""
+
+    def __init__(self, new_path):
+        self.old_path = os.getcwd()
+        self.new_path = new_path
+
+    def __enter__(self):
+        os.chdir(self.new_path)
+
+    def __exit__(self, type, value, traceback):
+        os.chdir(self.old_path)
+
+
+def create_temp_case(case_name):
+    with patched_chdir(os.path.dirname(__file__)):
+        path_test_cases = os.path.abspath("test_cases/")
+        path_case = os.path.join(path_test_cases, case_name)
+
+        path_tmpdir = tempfile.mkdtemp()
+        path_tmpdir_case = os.path.join(path_tmpdir, case_name)
+        shutil.copytree(path_case, path_tmpdir_case)
+
+    return path_tmpdir_case
+
+
+class Test_ini_path_collected(object):
+
+    """ Check pytest.ini location collected from plugin is correct """
+
+    def test_basic(self):
+        ''' Check pytest.ini location is correct'''
+        # always reset pwd to cur directory
+        path_case = create_temp_case("case_1")
+        os.chdir(path_case)
+
+        collect_config = CollectConfig()
+        with silence():
+            pytest.main(['--collect-only'], plugins=[collect_config])
+
+        path_pytest_ini = os.path.join(path_case, "pytest.ini")
+        assert(str(collect_config.path) == path_pytest_ini)
+
+    def test_from_inner_dir(self):
+        ''' Check pytest.ini location is correct, also from a inner directory'''
+        path_case = create_temp_case("case_1")
+        path_case_inner = os.path.join(path_case, "dir_1")
+        os.chdir(path_case_inner)
+
+        collect_config = CollectConfig()
+        with silence():
+            pytest.main(['--collect-only'], plugins=[collect_config])
+
+        path_pytest_ini = os.path.join(path_case, "pytest.ini")
+        assert(str(collect_config.path) == path_pytest_ini)
+
+
+class Test_merge_config(object):
+
+    """All tests for func merge_config"""
+
+    def test_works_alone(self):
+        '''
+        Check ini config works alone.
+        Set pytest.ini:
+            [pytest-watch]
+            verbose = True
+        '''
+        os.chdir(os.path.dirname(__file__))
+        path_case = create_temp_case("case_1")
+        os.chdir(path_case)
+
+        args = {"--verbose": False,
+                "--help": False,
+                "--ignore": None}
+        merge_config(args)
+
+        assert(args["--verbose"] is True)
+        assert(args["--help"] is False)
+        assert(args["--ignore"] is None)
+
+    def test_works_with_cmdline(self):
+        '''
+        Check ini config works alongwith cmdline args.
+        Set pytest.ini:
+            [pytest-watch]
+            verbose = True
+        '''
+        path_case = create_temp_case("case_1")
+        os.chdir(path_case)
+
+        args = {"--verbose": False,
+                "--help": False,
+                "--ignore": "dir_a"}
+        merge_config(args)
+
+        assert(args["--verbose"] is True)
+        assert(args["--help"] is False)
+        assert(args["--ignore"] is "dir_a")
+
+    def test_works_with_cmdline_precedence(self):
+        '''
+        Check ini config works alongwith cmdline args, \
+        with cmdline precedence
+        Set pytest.ini:
+            [pytest-watch]
+            version = False
+            ignore = dir_b
+            help = True
+        '''
+        path_case = create_temp_case("case_2")
+        os.chdir(path_case)
+
+        args = {"--verbose": True,
+                "--help": False,
+                "--ignore": "dir_a"}
+        merge_config(args)
+
+        assert(args["--verbose"] is True)
+        assert(args["--help"] is True)
+        assert(args["--ignore"] is "dir_a")
+
+    def test_works_wo_ini(self):
+        '''
+        Check ini config works correctly with only cmdline \
+        args, without any pytest.ini.
+        No pytest.ini present
+        '''
+        path_case = create_temp_case("case_3")
+        os.chdir(path_case)
+
+        args = {"--verbose": True,
+                "--help": False,
+                "--onpass": None,
+                "--ignore": "dir_a"}
+        merge_config(args)
+
+        assert(args["--verbose"] is True)
+        assert(args["--help"] is False)
+        assert(args["--onpass"] is None)
+        assert(args["--ignore"] is "dir_a")
+
+    def test_works_wo_pytest_watch_section(self):
+        '''
+        Check ini config works correctly with only cmdline \
+        args, without any [pytest-watch] section in pytest.ini.
+        Also, shouldnt read pytest settings by mistake.
+        Set pytest.ini:
+            [pytest]
+            verbose = True
+        '''
+        path_case = create_temp_case("case_4")
+        os.chdir(path_case)
+
+        args = {"--verbose": False,
+                "--help": True,
+                "--onpass": None,
+                "--ignore": "dir_a"}
+        merge_config(args)
+
+        assert(args["--verbose"] is False)
+        assert(args["--help"] is True)
+        assert(args["--onpass"] is None)
+        assert(args["--ignore"] is "dir_a")
+
+    @pytest.mark.xfail
+    def test_works_directories_ini_option(self):
+        '''
+        Currently, "directories" or "<directories>" argument \
+        in pytest.ini is not respected. So, it is marked to xfail.
+
+        When it'll pass, "directories" option should be added to \
+        more test cases.
+        Set pytest.ini:
+            [pytest-watch]
+            directories = dir_c,dir_d
+            <directories> = dir_c,dir_d
+        '''
+        path_case = create_temp_case("case_5")
+        os.chdir(path_case)
+
+        args = {"--verbose": False,
+                "--help": True,
+                "--onpass": None,
+                "<directories>": "dir_a,dir_b"}
+        merge_config(args)
+
+        # main condition
+        assert(args["<directories>"] is ["dir_c", "dir_d"])
+        # auxiliary conditions
+        assert(args["--verbose"] is False)
+        assert(args["--help"] is True)
+        assert(args["--onpass"] is None)