diff --git a/test/includes/microcloud.sh b/test/includes/microcloud.sh
index 983da1547..62de17da2 100644
--- a/test/includes/microcloud.sh
+++ b/test/includes/microcloud.sh
@@ -5,7 +5,7 @@ unset_interactive_vars() {
   unset LOOKUP_IFACE LIMIT_SUBNET SKIP_SERVICE EXPECT_PEERS REUSE_EXISTING REUSE_EXISTING_COUNT \
     SETUP_ZFS ZFS_FILTER ZFS_WIPE \
     SETUP_CEPH CEPH_WARNING CEPH_FILTER CEPH_WIPE SETUP_CEPHFS CEPH_CLUSTER_NETWORK IGNORE_CEPH_NETWORKING \
-    PROCEED_WITH_NO_OVERLAY_NETWORKING SETUP_OVN OVN_WARNING OVN_FILTER IPV4_SUBNET IPV4_START IPV4_END DNS_ADDRESSES IPV6_SUBNET
+    PROCEED_WITH_NO_OVERLAY_NETWORKING SETUP_OVN OVN_UNDERLAY_NETWORK OVN_UNDERLAY_FILTER OVN_WARNING OVN_FILTER IPV4_SUBNET IPV4_START IPV4_END DNS_ADDRESSES IPV6_SUBNET
 }
 
 # microcloud_interactive: outputs text that can be passed to `TEST_CONSOLE=1 microcloud init`
@@ -37,6 +37,8 @@ microcloud_interactive() {
   IPV4_START=${IPV4_START:-}                      # OVN ipv4 range start.
   IPV4_END=${IPV4_END:-}                          # OVN ipv4 range end.
   DNS_ADDRESSES=${DNS_ADDRESSES:-}                # OVN custom DNS addresses.
+  OVN_UNDERLAY_NETWORK=${OVN_UNDERLAY_NETWORK:-}  # (yes/no) set up a custom OVN underlay network.
+  OVN_UNDERLAY_FILTER=${OVN_UNDERLAY_FILTER:-}    # filter string for OVN underlay interfaces.
   IPV6_SUBNET=${IPV6_SUBNET:-}                    # OVN ipv6 range.
 
   setup="
@@ -106,6 +108,18 @@ $(true)                                                 # workaround for set -e
 fi
 
 if [ -n "${SETUP_OVN}" ]; then
+  setup_ovn_underlay=""
+  if [ "${OVN_UNDERLAY_NETWORK}" = "yes" ]; then
+    setup_ovn_underlay="${OVN_UNDERLAY_NETWORK}
+$(printf "wait 300ms")
+${OVN_UNDERLAY_FILTER}
+$(printf "select-all")
+$(printf -- "---")
+"
+  else
+    setup_ovn_underlay="no"
+  fi
+
   setup="${setup}
 ${SETUP_OVN}                                           # agree to setup OVN
 ${OVN_WARNING}                                         # continue with some peers missing an interface? (yes/no)
@@ -118,6 +132,7 @@ ${IPV4_START}
 ${IPV4_END}
 ${IPV6_SUBNET}
 ${DNS_ADDRESSES}
+${setup_ovn_underlay}                                   # setup OVN underlay network
 $(true)                                                 # workaround for set -e
 "
 fi
@@ -226,11 +241,28 @@ validate_system_microceph() {
 # validate_system_microovn: Ensures the node with the given name has correctly set up MicroOVN with the given resources.
 validate_system_microovn() {
     name=${1}
+    shift 1
 
     echo "==> ${name} Validating MicroOVN"
 
     lxc remote switch local
     lxc exec "${name}" -- microovn cluster list | grep -q "${name}"
+
+    ovn_underlay_subnet_prefix=""
+    if echo "${1}" | grep -Pq '^([0-9]{1,3}\.){2}[0-9]{1,3}$'; then
+      ovn_underlay_subnet_prefix="${1}"
+      shift 1
+    fi
+
+    # Instances are named micro01, micro02, etc.
+    # We need to extract the instance number to check the OVN Geneve tunnel IP.
+    instance_idx=$(echo "${name}" | grep -oE '[0-9]+$')
+    underlay_ip_idx=$((instance_idx + 1))
+    if [ -n "${ovn_underlay_subnet_prefix}" ]; then
+      lxc exec "${name}" -- sh -ceu "
+        microovn.ovn-sbctl --columns=ip,type find Encap type=geneve | grep -q ${ovn_underlay_subnet_prefix}.${underlay_ip_idx}
+      " > /dev/null
+    fi
 }
 
 # validate_system_lxd_zfs: Ensures the node with the given name has the given disk set up for ZFS storage.
diff --git a/test/suites/basic.sh b/test/suites/basic.sh
index 77f0e2d1f..e61d580dc 100644
--- a/test/suites/basic.sh
+++ b/test/suites/basic.sh
@@ -228,6 +228,29 @@ test_interactive() {
     validate_system_microceph "${m}" 1 "${CEPH_CLUSTER_NETWORK}" disk2
     validate_system_microovn "${m}"
   done
+
+  reset_systems 3 3 2
+
+  ovn_underlay_subnet_prefix="10.0.1"
+  ovn_underlay_subnet_iface="enp7s0"
+
+  for n in $(seq 2 4); do
+    ovn_underlay_ip="${ovn_underlay_subnet_prefix}.${n}/24"
+    lxc exec "micro0$((n-1))" -- ip addr add "${ovn_underlay_ip}" dev "${ovn_underlay_subnet_iface}"
+  done
+
+  echo "Creating a MicroCloud with ZFS, OVN management network and OVN underlay network"
+  unset SETUP_CEPH
+  export OVN_UNDERLAY_NETWORK="yes"
+  export OVN_UNDERLAY_FILTER="${ovn_underlay_subnet_prefix}"
+  microcloud_interactive | lxc exec micro01 -- sh -c "microcloud init > out"
+
+  lxc exec micro01 -- tail -1 out | grep "MicroCloud is ready" -q
+  for m in micro01 micro02 micro03 ; do
+    validate_system_lxd "${m}" 3 disk1 3 1 "${OVN_FILTER}" "${IPV4_SUBNET}" "${IPV4_START}"-"${IPV4_END}" "${IPV6_SUBNET}"
+    validate_system_microceph "${m}" 1 disk2
+    validate_system_microovn "${m}" "${ovn_underlay_subnet_prefix}"
+  done
 }
 
 test_instances_config() {