diff --git a/test/e2e/assets/hg-repos/README.md b/test/e2e/assets/hg-repos/README.md
new file mode 100644
index 00000000..ce1330fe
--- /dev/null
+++ b/test/e2e/assets/hg-repos/README.md
@@ -0,0 +1,6 @@
+``build.sh`` assemble a mercurial repository and more, suitable for testing the hg
+fetcher cache feature:
+
+- A base repository (repo)
+- A bundle with an extra changeset
+- A json file with the changeset ids we need in the test, and the bundle filename
diff --git a/test/e2e/assets/hg-repos/asset.tgz b/test/e2e/assets/hg-repos/asset.tgz
new file mode 100644
index 00000000..0f4cdca9
Binary files /dev/null and b/test/e2e/assets/hg-repos/asset.tgz differ
diff --git a/test/e2e/assets/hg-repos/build.sh b/test/e2e/assets/hg-repos/build.sh
new file mode 100755
index 00000000..bc9f2695
--- /dev/null
+++ b/test/e2e/assets/hg-repos/build.sh
@@ -0,0 +1,44 @@
+#!/bin/bash
+
+rm -rf build
+
+mkdir build
+cd build
+
+mkdir repo
+cd repo
+
+hg init .
+
+echo "content1" > file1.txt
+
+hg add file1.txt
+hg commit -m "Added file1"
+CSET1_ID=$(hg id --id)
+
+hg tag first-tag
+hg phase -p
+
+hg topic "wip"
+echo "content2" > file1.txt
+hg commit -m "extra cset"
+CSETX_ID=$(hg id --id)
+
+hg strip -r . 
+
+BUNDLE=$(basename .hg/strip-backup/*-backup.hg)
+mv .hg/strip-backup/$BUNDLE ..
+
+hg checkout 00000
+
+cd ..
+
+cat > info.json <<EOF
+{
+    "initial-changeset": "$CSET1_ID",
+    "extra-bundle": "$BUNDLE",
+    "extra-changeset": "$CSETX_ID"
+}
+EOF
+
+tar caf ../asset.tgz .
diff --git a/test/e2e/hg_test.go b/test/e2e/hg_test.go
new file mode 100644
index 00000000..2d5b1bad
--- /dev/null
+++ b/test/e2e/hg_test.go
@@ -0,0 +1,167 @@
+package e2e
+
+import (
+	"bytes"
+	"encoding/json"
+	"fmt"
+	"io"
+	"os"
+	"os/exec"
+	"path"
+	"path/filepath"
+	"strings"
+	"testing"
+
+	"github.com/stretchr/testify/assert"
+	"github.com/stretchr/testify/require"
+)
+
+type HgAssetInfo struct {
+	InitialChangeset string `json:"initial-changeset"`
+	ExtraBundle      string `json:"extra-bundle"`
+	ExtraChangeset   string `json:"extra-changeset"`
+}
+
+type hgVendirOutput struct {
+	Tables string
+	Blocks []string
+	Lines  []string
+}
+
+func loadHgAssetInfo(t *testing.T, filename string) HgAssetInfo {
+	t.Helper()
+	f, err := os.Open(filename)
+	if err != nil {
+		t.Fatalf("could not open file %s: %s", filename, err)
+	}
+	var info HgAssetInfo
+	if err := json.NewDecoder(f).Decode(&info); err != nil {
+		t.Fatalf("could not parse file %s: %s", filename, err)
+	}
+	return info
+}
+
+func TestHgCache(t *testing.T) {
+	env := BuildEnv(t)
+	logger := Logger{}
+	vendir := Vendir{t, env.BinaryPath, logger}
+
+	_ = Vendir{t, env.BinaryPath, logger}
+
+	hgSrcPath, err := os.MkdirTemp("", "vendir-e2e-hg-cache")
+	if err != nil {
+		t.Fatal(err)
+	}
+	defer os.RemoveAll(hgSrcPath)
+
+	out, err := exec.Command("tar", "xzvf", "assets/hg-repos/asset.tgz", "-C", hgSrcPath).CombinedOutput()
+	if err != nil {
+		t.Fatalf("Unpacking hg-repos asset: %s (output: '%s')", err, out)
+	}
+
+	info := loadHgAssetInfo(t, path.Join(hgSrcPath, "info.json"))
+
+	yamlConfig := func(ref string) io.Reader {
+		return strings.NewReader(fmt.Sprintf(`
+apiVersion: vendir.k14s.io/v1alpha1
+kind: Config
+directories:
+- path: vendor
+  contents:
+  - path: test
+    hg:
+      url: "%s/repo"
+      ref: "%s"
+`, hgSrcPath, ref))
+	}
+
+	cachePath, err := os.MkdirTemp("", "vendir-e2e-hg-cache-vendir-cache")
+	require.NoError(t, err)
+	defer os.RemoveAll(cachePath)
+
+	dstPath, err := os.MkdirTemp("", "vendir-e2e-hg-cache-dst")
+	require.NoError(t, err)
+	defer os.RemoveAll(dstPath)
+
+	var stdout bytes.Buffer
+	stdoutDec := json.NewDecoder(&stdout)
+	//defer os.RemoveAll(dstPath)
+	logger.Section("initial clone", func() {
+		stdout.Truncate(0)
+		vendir.RunWithOpts(
+			[]string{"sync", "-f", "-", "--json"},
+			RunOpts{
+				Dir:          dstPath,
+				StdinReader:  yamlConfig(info.InitialChangeset),
+				StdoutWriter: &stdout,
+				Env:          []string{"VENDIR_CACHE_DIR=" + cachePath},
+			})
+
+		var out hgVendirOutput
+		require.NoError(t, stdoutDec.Decode(&out))
+
+		assert.Contains(t, out.Lines[1], "init")
+		assert.Contains(t, out.Lines[3], "pull")
+
+		b, err := os.ReadFile(filepath.Join(dstPath, "vendor", "test", "file1.txt"))
+		assert.NoError(t, err)
+		assert.Equal(t, "content1\n", string(b))
+	})
+
+	logger.Section("sync from cache only", func() {
+		stdout.Truncate(0)
+		vendir.RunWithOpts(
+			[]string{"sync", "-f", "-", "--json"},
+			RunOpts{
+				Dir:          dstPath,
+				StdinReader:  yamlConfig(info.InitialChangeset),
+				StdoutWriter: &stdout,
+				Env:          []string{"VENDIR_CACHE_DIR=" + cachePath},
+			})
+
+		var out hgVendirOutput
+		require.NoError(t, stdoutDec.Decode(&out))
+
+		for _, line := range out.Lines {
+			assert.NotContains(t, line, "init")
+			assert.NotContains(t, line, "pull")
+		}
+
+		b, err := os.ReadFile(filepath.Join(dstPath, "vendor", "test", "file1.txt"))
+		assert.NoError(t, err)
+		assert.Equal(t, "content1\n", string(b))
+	})
+
+	out, err = exec.Command(
+		"hg", "unbundle",
+		"--repository", filepath.Join(hgSrcPath, "/repo"),
+		filepath.Join(hgSrcPath, info.ExtraBundle),
+	).CombinedOutput()
+	if err != nil {
+		t.Fatalf("Unpacking hg-repos asset: %s (output: '%s')", err, out)
+	}
+
+	logger.Section("sync from cache + pull", func() {
+		stdout.Truncate(0)
+		vendir.RunWithOpts(
+			[]string{"sync", "-f", "-", "--json"},
+			RunOpts{
+				Dir:          dstPath,
+				StdinReader:  yamlConfig(info.ExtraChangeset),
+				StdoutWriter: &stdout,
+				Env:          []string{"VENDIR_CACHE_DIR=" + cachePath},
+			})
+
+		var out hgVendirOutput
+		require.NoError(t, stdoutDec.Decode(&out))
+
+		assert.Contains(t, out.Lines[3], "pull")
+		for _, line := range out.Lines {
+			assert.NotContains(t, line, "init")
+		}
+
+		b, err := os.ReadFile(filepath.Join(dstPath, "vendor", "test", "file1.txt"))
+		assert.NoError(t, err)
+		assert.Equal(t, "content2\n", string(b))
+	})
+}