diff --git a/state/execution_test.go b/state/execution_test.go
new file mode 100644
index 000000000..7e0b7332b
--- /dev/null
+++ b/state/execution_test.go
@@ -0,0 +1,90 @@
+package state
+
+import (
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+	"github.com/stretchr/testify/require"
+	"github.com/tendermint/abci/example/dummy"
+	crypto "github.com/tendermint/go-crypto"
+	dbm "github.com/tendermint/go-db"
+	cfg "github.com/tendermint/tendermint/config/tendermint_test"
+	"github.com/tendermint/tendermint/mempool"
+	"github.com/tendermint/tendermint/proxy"
+	txindexer "github.com/tendermint/tendermint/state/tx/indexer"
+	"github.com/tendermint/tendermint/types"
+)
+
+var (
+	privKey      = crypto.GenPrivKeyEd25519FromSecret([]byte("execution_test"))
+	chainID      = "execution_chain"
+	testPartSize = 65536
+	nTxsPerBlock = 10
+)
+
+func TestApplyBlock(t *testing.T) {
+	cc := proxy.NewLocalClientCreator(dummy.NewDummyApplication())
+	config := cfg.ResetConfig("execution_test_")
+	proxyApp := proxy.NewAppConns(config, cc, nil)
+	_, err := proxyApp.Start()
+	require.Nil(t, err)
+	defer proxyApp.Stop()
+	mempool := mempool.NewMempool(config, proxyApp.Mempool())
+
+	state := state()
+	indexer := &dummyIndexer{0}
+	state.TxIndexer = indexer
+
+	// make block
+	block := makeBlock(1, state)
+
+	err = state.ApplyBlock(nil, proxyApp.Consensus(), block, block.MakePartSet(testPartSize).Header(), mempool)
+
+	require.Nil(t, err)
+	assert.Equal(t, nTxsPerBlock, indexer.Indexed) // test indexing works
+
+	// TODO check state and mempool
+}
+
+//----------------------------------------------------------------------------
+
+// make some bogus txs
+func txsFunc(blockNum int) (txs []types.Tx) {
+	for i := 0; i < nTxsPerBlock; i++ {
+		txs = append(txs, types.Tx([]byte{byte(blockNum), byte(i)}))
+	}
+	return txs
+}
+
+func state() *State {
+	return MakeGenesisState(dbm.NewMemDB(), &types.GenesisDoc{
+		ChainID: chainID,
+		Validators: []types.GenesisValidator{
+			types.GenesisValidator{privKey.PubKey(), 10000, "test"},
+		},
+		AppHash: nil,
+	})
+}
+
+func makeBlock(num int, state *State) *types.Block {
+	prevHash := state.LastBlockID.Hash
+	prevParts := types.PartSetHeader{}
+	valHash := state.Validators.Hash()
+	prevBlockID := types.BlockID{prevHash, prevParts}
+	block, _ := types.MakeBlock(num, chainID, txsFunc(num), new(types.Commit),
+		prevBlockID, valHash, state.AppHash, testPartSize)
+	return block
+}
+
+// dummyIndexer increments counter every time we index transaction.
+type dummyIndexer struct {
+	Indexed int
+}
+
+func (indexer *dummyIndexer) Tx(hash string) (*types.TxResult, error) {
+	return nil, nil
+}
+func (indexer *dummyIndexer) Batch(batch *txindexer.Batch) error {
+	indexer.Indexed += batch.Size()
+	return nil
+}