diff --git a/packages/cli/src/lib/create/factories/common/tasks.test.ts b/packages/cli/src/lib/create/factories/common/tasks.test.ts
new file mode 100644
index 0000000000..b3a751ba5b
--- /dev/null
+++ b/packages/cli/src/lib/create/factories/common/tasks.test.ts
@@ -0,0 +1,117 @@
+/*
+ * Copyright 2021 The Backstage Authors
+ *
+ * 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.
+ */
+
+import fs from 'fs-extra';
+import mockFs from 'mock-fs';
+import { createMockOutputStream, mockPaths } from './testUtils';
+import { CreateContext } from '../../types';
+import { executePluginPackageTemplate } from './tasks';
+
+mockPaths({
+  ownDir: '/own',
+  targetRoot: '/root',
+});
+
+describe('executePluginPackageTemplate', () => {
+  afterEach(() => {
+    mockFs.restore();
+    jest.resetAllMocks();
+  });
+
+  it('should execute template', async () => {
+    mockFs({
+      '/root': {
+        'yarn.lock': `
+some-package@^1.1.0:
+  version "1.5.0"
+`,
+      },
+      '/own': {
+        templates: {
+          'test-template': {
+            'package.json.hbs': `
+{
+  "name": "my-{{id}}-plugin",
+  {{#if makePrivate}}
+    "private": true,
+  {{/if}}
+  "description": "testing",
+  "dependencies": {
+    "some-package": "{{ versionQuery 'some-package' '1.3.0' }}",
+    "other-package": "{{ versionQuery 'other-package' '2.3.0' }}"
+  }
+}
+`,
+            subdir: {
+              'templated.txt.hbs': 'Hello {{id}}!',
+              'not-templated.txt': 'Hello {{id}}!',
+            },
+          },
+        },
+      },
+    });
+
+    const [output, mockStream] = createMockOutputStream();
+    jest.spyOn(process, 'stderr', 'get').mockReturnValue(mockStream);
+
+    let modified = false;
+    await executePluginPackageTemplate(
+      {
+        createTemporaryDirectory: (name: string) => fs.mkdtemp(name),
+        markAsModified: () => {
+          modified = true;
+        },
+      } as CreateContext,
+      {
+        templateName: 'test-template',
+        targetDir: '/target',
+        values: {
+          id: 'testing',
+          makePrivate: true,
+        },
+      },
+    );
+
+    expect(modified).toBe(true);
+    expect(output).toEqual([
+      'Checking Prerequisites:',
+      'availability  /target ✔',
+      'creating      temp dir ✔',
+      'Executing Template:',
+      'templating    package.json.hbs ✔',
+      'copying       not-templated.txt ✔',
+      'templating    templated.txt.hbs ✔',
+      'Installing:',
+      'moving        /target ✔',
+    ]);
+    await expect(fs.readFile('/target/package.json', 'utf8')).resolves.toBe(`{
+  "name": "my-testing-plugin",
+  "private": true,
+  "description": "testing",
+  "dependencies": {
+    "some-package": "^1.1.0",
+    "other-package": "^2.3.0"
+  }
+}
+`);
+    await expect(
+      fs.readFile('/target/subdir/templated.txt', 'utf8'),
+    ).resolves.toBe('Hello testing!');
+    await expect(
+      fs.readFile('/target/subdir/not-templated.txt', 'utf8'),
+    ).resolves.toBe('Hello {{id}}!');
+  });
+});
diff --git a/packages/cli/src/lib/create/factories/common/tasks.ts b/packages/cli/src/lib/create/factories/common/tasks.ts
index 6fe2e77fc7..fd3bd4d930 100644
--- a/packages/cli/src/lib/create/factories/common/tasks.ts
+++ b/packages/cli/src/lib/create/factories/common/tasks.ts
@@ -65,10 +65,10 @@ export async function executePluginPackageTemplate(
   );
 
   // Format package.json if it exists
-  const targetPkgJsonPath = resolvePath(targetDir, 'package.json');
-  if (await fs.pathExists(targetPkgJsonPath)) {
-    const pkgJson = await fs.readJson(targetPkgJsonPath);
-    await fs.writeJson(targetPkgJsonPath, pkgJson, { spaces: 2 });
+  const pkgJsonPath = resolvePath(tempDir, 'package.json');
+  if (await fs.pathExists(pkgJsonPath)) {
+    const pkgJson = await fs.readJson(pkgJsonPath);
+    await fs.writeJson(pkgJsonPath, pkgJson, { spaces: 2 });
   }
 
   Task.section('Installing');
diff --git a/packages/cli/src/lib/create/factories/common/testUtils.ts b/packages/cli/src/lib/create/factories/common/testUtils.ts
new file mode 100644
index 0000000000..651409451e
--- /dev/null
+++ b/packages/cli/src/lib/create/factories/common/testUtils.ts
@@ -0,0 +1,68 @@
+/*
+ * Copyright 2021 The Backstage Authors
+ *
+ * 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.
+ */
+
+import { WriteStream } from 'tty';
+import { resolve as resolvePath } from 'path';
+import { paths } from '../../../paths';
+
+export function mockPaths(options: {
+  ownDir?: string;
+  ownRoot?: string;
+  targetDir?: string;
+  targetRoot?: string;
+}): void {
+  const { ownDir, ownRoot, targetDir, targetRoot } = options;
+  if (ownDir) {
+    paths.ownDir = ownDir;
+    jest
+      .spyOn(paths, 'resolveOwn')
+      .mockImplementation((...ps) => resolvePath(ownDir, ...ps));
+  }
+  if (ownRoot) {
+    jest.spyOn(paths, 'ownRoot', 'get').mockReturnValue(ownRoot);
+    jest
+      .spyOn(paths, 'resolveOwnRoot')
+      .mockImplementation((...ps) => resolvePath(ownRoot, ...ps));
+  }
+  if (targetDir) {
+    paths.targetDir = targetDir;
+    jest
+      .spyOn(paths, 'resolveTarget')
+      .mockImplementation((...ps) => resolvePath(targetDir, ...ps));
+  }
+  if (targetRoot) {
+    jest.spyOn(paths, 'targetRoot', 'get').mockReturnValue(targetRoot);
+    jest
+      .spyOn(paths, 'resolveTargetRoot')
+      .mockImplementation((...ps) => resolvePath(targetRoot, ...ps));
+  }
+}
+
+export function createMockOutputStream() {
+  const output = new Array<string>();
+  return [
+    output,
+    {
+      cursorTo: () => {},
+      clearLine: () => {},
+      moveCursor: () => {},
+      write: (msg: string) =>
+        // Clean up colors and whitespace
+        // eslint-disable-next-line no-control-regex
+        output.push(msg.replace(/\x1B\[\d\dm/g, '').trim()),
+    } as unknown as WriteStream & { fd: any },
+  ] as const;
+}