diff --git a/tests/test_config_template.py b/tests/test_config_template.py
new file mode 100644
index 00000000..943c806d
--- /dev/null
+++ b/tests/test_config_template.py
@@ -0,0 +1,133 @@
+#!/usr/bin/env python3
+"""Tests for config_template.py — issue #696"""
+import os
+import sys
+import tempfile
+import pytest
+from pathlib import Path
+
+# Add parent dir for import
+sys.path.insert(0, str(Path(__file__).resolve().parent.parent / "scripts"))
+from config_template import ConfigTemplate, _deep_merge, _get_dotted, _diff_dicts, _validate_config
+
+
+@pytest.fixture
+def tmp_config_dir(tmp_path):
+    """Create a temp config dir with base + overlay files."""
+    import yaml
+    base = {
+        "model": {"name": "base-model", "temperature": 0.7},
+        "cron": {"enabled": False, "interval": 300},
+        "display": {"colors": True},
+    }
+    overlay = {
+        "model": {"temperature": 0.9},
+        "cron": {"enabled": True},
+        "logging": {"level": "DEBUG"},
+    }
+    with open(tmp_path / "base.yaml", "w") as f:
+        yaml.dump(base, f)
+    with open(tmp_path / "test.overlay.yaml", "w") as f:
+        yaml.dump(overlay, f)
+    return tmp_path
+
+
+class TestDeepMerge:
+    def test_overlay_wins(self):
+        base = {"a": 1, "b": 2}
+        overlay = {"b": 99}
+        result = _deep_merge(base, overlay)
+        assert result == {"a": 1, "b": 99}
+
+    def test_deep_merge_nested(self):
+        base = {"model": {"name": "x", "temp": 0.7}}
+        overlay = {"model": {"temp": 0.9}}
+        result = _deep_merge(base, overlay)
+        assert result["model"]["name"] == "x"
+        assert result["model"]["temp"] == 0.9
+
+    def test_new_keys_added(self):
+        base = {"a": 1}
+        overlay = {"b": 2}
+        result = _deep_merge(base, overlay)
+        assert result == {"a": 1, "b": 2}
+
+    def test_originals_unchanged(self):
+        base = {"a": {"inner": 1}}
+        overlay = {"a": {"inner": 99}}
+        _deep_merge(base, overlay)
+        assert base["a"]["inner"] == 1
+
+
+class TestDottedAccess:
+    def test_simple_key(self):
+        assert _get_dotted({"a": 1}, "a") == 1
+
+    def test_nested_key(self):
+        assert _get_dotted({"a": {"b": {"c": 42}}}, "a.b.c") == 42
+
+    def test_missing_key_returns_default(self):
+        assert _get_dotted({"a": 1}, "x", "fallback") == "fallback"
+
+    def test_partial_path(self):
+        assert _get_dotted({"a": 1}, "a.b.c", None) is None
+
+
+class TestDiff:
+    def test_no_diff(self):
+        assert _diff_dicts({"a": 1}, {"a": 1}) == []
+
+    def test_changed_value(self):
+        diffs = _diff_dicts({"a": 1}, {"a": 2})
+        assert len(diffs) == 1
+        assert diffs[0]["type"] == "changed"
+
+    def test_added_key(self):
+        diffs = _diff_dicts({"a": 1}, {"a": 1, "b": 2})
+        added = [d for d in diffs if d["type"] == "added_in_overlay"]
+        assert len(added) == 1
+        assert added[0]["key"] == "b"
+
+
+class TestValidation:
+    def test_valid_config(self):
+        config = {"model": {"name": "x"}, "provider": {"name": "y"}}
+        assert _validate_config(config) == []
+
+    def test_missing_model(self):
+        warnings = _validate_config({"provider": {}})
+        assert any("model" in w for w in warnings)
+
+
+class TestConfigTemplate:
+    def test_load(self, tmp_config_dir):
+        t = ConfigTemplate(str(tmp_config_dir))
+        merged = t.load("test")
+        assert merged["model"]["name"] == "base-model"
+        assert merged["model"]["temperature"] == 0.9
+        assert merged["cron"]["enabled"] is True
+        assert merged["logging"]["level"] == "DEBUG"
+
+    def test_get_dotted(self, tmp_config_dir):
+        t = ConfigTemplate(str(tmp_config_dir))
+        t.load("test")
+        assert t.get("model.temperature") == 0.9
+        assert t.get("nonexistent", "default") == "default"
+
+    def test_diff(self, tmp_config_dir):
+        t = ConfigTemplate(str(tmp_config_dir))
+        t.load("test")
+        diffs = t.diff()
+        assert len(diffs) > 0
+
+    def test_unknown_env_raises(self, tmp_config_dir):
+        t = ConfigTemplate(str(tmp_config_dir))
+        with pytest.raises(ValueError, match="Unknown environment"):
+            t.load("nonexistent")
+
+    def test_list_environments(self):
+        envs = ConfigTemplate.list_environments()
+        assert "dev" in envs
+        assert "prod" in envs
+        assert "cron" in envs
+        assert "gateway" in envs