diff --git a/pkg/model/components/kubedns_test.go b/pkg/model/components/kubedns_test.go
new file mode 100644
index 0000000000000..68f864020d2d6
--- /dev/null
+++ b/pkg/model/components/kubedns_test.go
@@ -0,0 +1,91 @@
+/*
+Copyright 2021 The Kubernetes Authors.
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package components
+
+import (
+	"strconv"
+	"testing"
+
+	kopsapi "k8s.io/kops/pkg/apis/kops"
+	"k8s.io/kops/upup/pkg/fi"
+	"k8s.io/kops/pkg/assets"
+)
+
+func buildKubeDNSCluster() *kopsapi.Cluster {
+	return &kopsapi.Cluster{
+		Spec: kopsapi.ClusterSpec{
+			CloudProvider:     "aws",
+			KubernetesVersion: "1.20.5",
+			ServiceClusterIPRange: "10.135.128.0/17",
+			KubeDNS: &kopsapi.KubeDNSConfig{
+				NodeLocalDNS: &kopsapi.NodeLocalDNSConfig{},
+			},
+		},
+	}
+}
+
+func Test_ForwardToKubeDNS_Is_False_When_NodeLocalDNS_Is_Enabled(t *testing.T) {
+	c := buildKubeDNSCluster()
+	c.Spec.KubeDNS.NodeLocalDNS.Enabled = fi.Bool(true)
+
+	b := assets.NewAssetBuilder(c, "")
+
+	ob := &KubeDnsOptionsBuilder{
+		&OptionsContext{
+			AssetBuilder: b,
+		},
+	}
+
+	err := ob.BuildOptions(&c.Spec)
+	if err != nil {
+		t.Fatalf("Error while building KubeDNS options: %v", err)
+	}
+
+	if !fi.BoolValue(c.Spec.KubeDNS.NodeLocalDNS.Enabled) {
+		t.Fatalf("NodeLocalDNS is not enabled.")
+	}
+
+	if fi.BoolValue(c.Spec.KubeDNS.NodeLocalDNS.ForwardToKubeDNS) {
+		t.Fatalf("ForwardToKubeDNS is enabled.")
+	}
+
+}
+
+func Test_ForwardToKubeDNS_Is_Nil_When_NodeLocalDNS_Is_Disabled(t *testing.T) {
+	c := buildKubeDNSCluster()
+
+	b := assets.NewAssetBuilder(c, "")
+
+	ob := &KubeDnsOptionsBuilder{
+		&OptionsContext{
+			AssetBuilder: b,
+		},
+	}
+
+	err := ob.BuildOptions(&c.Spec)
+	if err != nil {
+		t.Fatalf("Error while building KubeDNS options: %v", err)
+	}
+
+	if fi.BoolValue(c.Spec.KubeDNS.NodeLocalDNS.Enabled) {
+		t.Fatalf("NodeLocalDNS is enabled.")
+	}
+
+	if c.Spec.KubeDNS.NodeLocalDNS.ForwardToKubeDNS != nil {
+		t.Fatalf("ForwardToKubeDNS is set to %s", strconv.FormatBool(fi.BoolValue(c.Spec.KubeDNS.NodeLocalDNS.ForwardToKubeDNS)))
+	}
+}