diff --git a/packages/config-loader/src/sources/ObservableConfigProxy.test.ts b/packages/config-loader/src/sources/ObservableConfigProxy.test.ts
new file mode 100644
index 0000000000..d1fccf3e80
--- /dev/null
+++ b/packages/config-loader/src/sources/ObservableConfigProxy.test.ts
@@ -0,0 +1,143 @@
+/*
+ * Copyright 2020 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 { ConfigReader } from '@backstage/config';
+import { ObservableConfigProxy } from './ObservableConfigProxy';
+
+describe('ObservableConfigProxy', () => {
+  it('should notify subscribers', () => {
+    const config = ObservableConfigProxy.create(new AbortController());
+
+    const fn = jest.fn();
+    const sub = config.subscribe(fn);
+    expect(config.getOptionalNumber('x')).toBe(undefined);
+
+    config.setConfig(new ConfigReader({}));
+    expect(fn).toHaveBeenCalledTimes(1);
+    expect(config.getOptionalNumber('x')).toBe(undefined);
+
+    config.setConfig(new ConfigReader({ x: 1 }));
+    expect(fn).toHaveBeenCalledTimes(2);
+    expect(config.getOptionalNumber('x')).toBe(1);
+
+    config.setConfig(new ConfigReader({ x: 3 }));
+    expect(fn).toHaveBeenCalledTimes(3);
+    sub.unsubscribe();
+    expect(config.getOptionalNumber('x')).toBe(3);
+
+    config.setConfig(new ConfigReader({ x: 5 }));
+    expect(fn).toHaveBeenCalledTimes(3);
+    expect(config.getOptionalNumber('x')).toBe(5);
+  });
+
+  it('should forward subscriptions', () => {
+    const config1 = ObservableConfigProxy.create(new AbortController());
+
+    const fn1 = jest.fn();
+    const fn2 = jest.fn();
+    const fn3 = jest.fn();
+    const config2 = config1.getConfig('a');
+    const config3 = config2.getConfig('b');
+    const sub1 = config1.subscribe(fn1);
+    const sub2 = config2.subscribe!(fn2);
+    const sub3 = config3.subscribe!(fn3);
+    expect(config1.getOptionalNumber('x')).toBe(undefined);
+    expect(config2.getOptionalNumber('x')).toBe(undefined);
+    expect(config3.getOptionalNumber('x')).toBe(undefined);
+
+    config1.setConfig(new ConfigReader({}));
+    expect(fn1).toHaveBeenCalledTimes(1);
+    expect(fn2).toHaveBeenCalledTimes(1);
+    expect(fn3).toHaveBeenCalledTimes(1);
+    expect(config1.getOptionalNumber('x')).toBe(undefined);
+    expect(config2.getOptionalNumber('x')).toBe(undefined);
+    expect(config3.getOptionalNumber('x')).toBe(undefined);
+
+    config1.setConfig(new ConfigReader({ x: 1, a: { x: 2, b: { x: 3 } } }));
+    expect(fn1).toHaveBeenCalledTimes(2);
+    expect(fn2).toHaveBeenCalledTimes(2);
+    expect(fn3).toHaveBeenCalledTimes(2);
+    expect(config1.getNumber('x')).toBe(1);
+    expect(config2.getNumber('x')).toBe(2);
+    expect(config3.getNumber('x')).toBe(3);
+
+    sub1.unsubscribe();
+    sub2.unsubscribe();
+    sub3.unsubscribe();
+
+    config1.setConfig(new ConfigReader({ x: 4, a: { x: 5, b: { x: 6 } } }));
+    expect(fn1).toHaveBeenCalledTimes(2);
+    expect(fn2).toHaveBeenCalledTimes(2);
+    expect(fn3).toHaveBeenCalledTimes(2);
+    expect(config1.getNumber('x')).toBe(4);
+    expect(config2.getNumber('x')).toBe(5);
+    expect(config3.getNumber('x')).toBe(6);
+
+    config1.setConfig(new ConfigReader({}));
+    expect(() => config1.getNumber('x')).toThrow(
+      "Missing required config value at 'x'",
+    );
+    expect(() => config2.getNumber('x')).toThrow(
+      "Missing required config value at 'a'",
+    );
+    expect(() => config3.getNumber('x')).toThrow(
+      "Missing required config value at 'a'",
+    );
+
+    config1.setConfig(
+      new ConfigReader({ x: 's', a: { x: 's', b: { x: 's' } } }),
+    );
+    expect(() => config1.getNumber('x')).toThrow(
+      "Unable to convert config value for key 'x' in 'mock-config' to a number",
+    );
+    expect(() => config2.getNumber('x')).toThrow(
+      "Unable to convert config value for key 'a.x' in 'mock-config' to a number",
+    );
+    expect(() => config3.getNumber('x')).toThrow(
+      "Unable to convert config value for key 'a.b.x' in 'mock-config' to a number",
+    );
+  });
+
+  it('should make sub configs available as expected', () => {
+    const config = ObservableConfigProxy.create(new AbortController());
+
+    config.setConfig(new ConfigReader({ a: { x: 1 } }));
+
+    expect(config.getConfig('a')).toBeDefined();
+    expect(config.getConfig('a').getNumber('x')).toBe(1);
+    expect(config.getConfig('a').getOptionalNumber('x')).toBe(1);
+    expect(config.getOptionalConfig('a')?.getNumber('x')).toBe(1);
+    expect(config.getOptionalConfig('a')?.getOptionalNumber('x')).toBe(1);
+    expect(config.getOptionalConfig('b')).toBeUndefined();
+    expect(() => config.getConfig('b')).toBeDefined();
+    expect(() => config.getConfig('b').get()).toThrow();
+  });
+
+  it('should be closed', () => {
+    const controller = new AbortController();
+    const config = ObservableConfigProxy.create(controller);
+    config.setConfig(new ConfigReader({ a: { x: 1 } }));
+
+    expect(controller.signal.aborted).toBe(false);
+    config.close();
+    expect(controller.signal.aborted).toBe(true);
+    config.close();
+
+    expect(() => (config.getConfig('a') as any).close()).toThrow(
+      'Only the root config can be closed',
+    );
+  });
+});