diff --git a/tests/lib/vfs/Makefile.am b/tests/lib/vfs/Makefile.am
index 226f3f650..8b7b844e3 100644
--- a/tests/lib/vfs/Makefile.am
+++ b/tests/lib/vfs/Makefile.am
@@ -26,6 +26,7 @@ TESTS = \
 	vfs_path_from_str_flags \
 	vfs_path_string_convert \
 	vfs_prefix_to_class \
+	vfs_setup_cwd \
 	vfs_split \
 	vfs_s_get_path
 
@@ -66,6 +67,9 @@ tempdir_SOURCES = \
 vfs_get_encoding_SOURCES = \
 	vfs_get_encoding.c
 
+vfs_setup_cwd_SOURCES = \
+	vfs_setup_cwd.c
+
 vfs_split_SOURCES = \
 	vfs_split.c
 
diff --git a/tests/lib/vfs/vfs_setup_cwd.c b/tests/lib/vfs/vfs_setup_cwd.c
new file mode 100644
index 000000000..432143198
--- /dev/null
+++ b/tests/lib/vfs/vfs_setup_cwd.c
@@ -0,0 +1,165 @@
+/*
+   lib/vfs - test vfs_setup_cwd() functionality
+
+   Copyright (C) 2013
+   The Free Software Foundation, Inc.
+
+   Written by:
+   Slava Zanko <slavazanko@gmail.com>, 2013
+
+   This file is part of the Midnight Commander.
+
+   The Midnight Commander is free software: you can redistribute it
+   and/or modify it under the terms of the GNU General Public License as
+   published by the Free Software Foundation, either version 3 of the License,
+   or (at your option) any later version.
+
+   The Midnight Commander is distributed in the hope that it will be useful,
+   but WITHOUT ANY WARRANTY; without even the implied warranty of
+   MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+   GNU General Public License for more details.
+
+   You should have received a copy of the GNU General Public License
+   along with this program.  If not, see <http://www.gnu.org/licenses/>.
+ */
+
+#define TEST_SUITE_NAME "/lib/vfs"
+
+#include "tests/mctest.h"
+
+#include <stdlib.h>
+
+#include "lib/strutil.h"
+#include "lib/vfs/xdirentry.h"
+#include "src/vfs/local/local.c"
+
+/* --------------------------------------------------------------------------------------------- */
+
+/* @Mock */
+char *
+g_get_current_dir (void)
+{
+    return g_strdup ("/some/path");
+}
+
+/* --------------------------------------------------------------------------------------------- */
+
+static gboolean mc_stat__is_2nd_call_different = FALSE;
+static gboolean mc_stat__call_count = 0;
+
+/* @Mock */
+int
+mc_stat (const vfs_path_t * vpath, struct stat *my_stat)
+{
+    (void) vpath;
+
+    if (mc_stat__call_count++ > 1 && mc_stat__is_2nd_call_different)
+    {
+        my_stat->st_ino = 2;
+        my_stat->st_dev = 22;
+    }
+    else
+    {
+        my_stat->st_ino = 1;
+        my_stat->st_dev = 11;
+    }
+    if (mc_stat__call_count > 2)
+    {
+        mc_stat__call_count = 0;
+    }
+    return 0;
+}
+
+/* --------------------------------------------------------------------------------------------- */
+
+/* @Before */
+static void
+setup (void)
+{
+    str_init_strings (NULL);
+
+    vfs_init ();
+    init_localfs ();
+    vfs_setup_work_dir ();
+}
+
+/* --------------------------------------------------------------------------------------------- */
+
+/* @After */
+static void
+teardown (void)
+{
+    vfs_shut ();
+    str_uninit_strings ();
+}
+
+/* --------------------------------------------------------------------------------------------- */
+
+/* @DataSource("test_vfs_setup_cwd_symlink_ds") */
+/* *INDENT-OFF* */
+static const struct test_vfs_setup_cwd_symlink_ds
+{
+    gboolean is_2nd_call_different;
+    const char *expected_result;
+} test_vfs_setup_cwd_symlink_ds[] =
+{
+    { /* 0. */
+        TRUE,
+        "/some/path"
+    },
+    { /* 1. */
+        FALSE,
+        "/some/path2"
+    },
+};
+/* *INDENT-ON* */
+
+/* @Test */
+/* *INDENT-OFF* */
+START_PARAMETRIZED_TEST (test_vfs_setup_cwd_symlink, test_vfs_setup_cwd_symlink_ds)
+/* *INDENT-ON* */
+{
+    /* given */
+    vfs_set_raw_current_dir (NULL);
+    mc_stat__is_2nd_call_different = data->is_2nd_call_different;
+    mc_stat__call_count = 0;
+    setenv ("PWD", "/some/path2", 1);
+
+    /* when */
+    vfs_setup_cwd ();
+
+    /* then */
+    mctest_assert_str_eq (vfs_path_as_str (vfs_get_raw_current_dir ()), data->expected_result);
+}
+/* *INDENT-OFF* */
+END_PARAMETRIZED_TEST
+/* *INDENT-ON* */
+
+/* --------------------------------------------------------------------------------------------- */
+
+int
+main (void)
+{
+    int number_failed;
+
+    Suite *s = suite_create (TEST_SUITE_NAME);
+    TCase *tc_core = tcase_create ("Core");
+    SRunner *sr;
+
+    tcase_add_checked_fixture (tc_core, setup, teardown);
+
+    /* Add new tests here: *************** */
+    mctest_add_parameterized_test (tc_core, test_vfs_setup_cwd_symlink,
+                                   test_vfs_setup_cwd_symlink_ds);
+    /* *********************************** */
+
+    suite_add_tcase (s, tc_core);
+    sr = srunner_create (s);
+    srunner_set_log (sr, "vfs_setup_cwd.log");
+    srunner_run_all (sr, CK_NOFORK);
+    number_failed = srunner_ntests_failed (sr);
+    srunner_free (sr);
+    return (number_failed == 0) ? 0 : 1;
+}
+
+/* --------------------------------------------------------------------------------------------- */