diff --git a/Makefile-boot.am b/Makefile-boot.am
index 90f9804834..c07b6b8123 100644
--- a/Makefile-boot.am
+++ b/Makefile-boot.am
@@ -42,6 +42,7 @@ systemdsystemunit_DATA = src/boot/ostree-prepare-root.service \
 	src/boot/ostree-finalize-staged.service \
 	src/boot/ostree-finalize-staged.path \
 	src/boot/ostree-finalize-staged-hold.service \
+	src/boot/ostree-state-overlay@.service \
 	$(NULL)
 systemdtmpfilesdir = $(prefix)/lib/tmpfiles.d
 dist_systemdtmpfiles_DATA = src/boot/ostree-tmpfiles.conf
@@ -72,6 +73,7 @@ EXTRA_DIST += src/boot/dracut/module-setup.sh \
 	src/boot/ostree-remount.service \
 	src/boot/ostree-finalize-staged.service \
 	src/boot/ostree-finalize-staged-hold.service \
+	src/boot/ostree-state-overlay@.service \
 	src/boot/grub2/grub2-15_ostree \
 	src/boot/grub2/ostree-grub-generator \
 	$(NULL)
diff --git a/Makefile-ostree.am b/Makefile-ostree.am
index ade079c976..d2447ffe9d 100644
--- a/Makefile-ostree.am
+++ b/Makefile-ostree.am
@@ -85,6 +85,7 @@ ostree_SOURCES += \
 	src/ostree/ot-admin-builtin-post-copy.c \
 	src/ostree/ot-admin-builtin-upgrade.c \
 	src/ostree/ot-admin-builtin-unlock.c \
+	src/ostree/ot-admin-builtin-state-overlay.c \
 	src/ostree/ot-admin-builtins.h \
 	src/ostree/ot-admin-instutil-builtin-selinux-ensure-labeled.c \
 	src/ostree/ot-admin-instutil-builtin-set-kargs.c \
diff --git a/src/boot/ostree-state-overlay@.service b/src/boot/ostree-state-overlay@.service
new file mode 100644
index 0000000000..dc8aeac51b
--- /dev/null
+++ b/src/boot/ostree-state-overlay@.service
@@ -0,0 +1,36 @@
+# Copyright (C) 2023 Red Hat Inc.
+#
+# This library is free software; you can redistribute it and/or
+# modify it under the terms of the GNU Lesser General Public
+# License as published by the Free Software Foundation; either
+# version 2 of the License, or (at your option) any later version.
+#
+# This library is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the GNU
+# Lesser General Public License for more details.
+#
+# You should have received a copy of the GNU Lesser General Public
+# License along with this library. If not, see <https://www.gnu.org/licenses/>.
+
+[Unit]
+Description=OSTree State Overlay On /%I
+Documentation=man:ostree(1)
+DefaultDependencies=no
+ConditionKernelCommandLine=ostree
+# run after /var is setup since that's where the upperdir is stored
+# and after boot.mount so we can load the sysroot
+After=var.mount boot.mount
+# but before local-fs.target, which we consider ourselves a part of
+Before=local-fs.target
+
+[Service]
+Type=oneshot
+RemainAfterExit=yes
+ExecStart=/usr/bin/ostree admin state-overlay %i /%I
+StandardInput=null
+StandardOutput=journal
+StandardError=journal+console
+
+[Install]
+WantedBy=local-fs.target
diff --git a/src/ostree/ot-admin-builtin-state-overlay.c b/src/ostree/ot-admin-builtin-state-overlay.c
new file mode 100644
index 0000000000..64380bb0f2
--- /dev/null
+++ b/src/ostree/ot-admin-builtin-state-overlay.c
@@ -0,0 +1,243 @@
+/* Copyright (C) 2023 Red Hat, Inc.
+ *
+ * SPDX-License-Identifier: LGPL-2.0+
+ *
+ * This library is free software; you can redistribute it and/or
+ * modify it under the terms of the GNU Lesser General Public
+ * License as published by the Free Software Foundation; either
+ * version 2 of the License, or (at your option) any later version.
+ *
+ * This library is distributed in the hope that it will be useful,
+ * but WITHOUT ANY WARRANTY; without even the implied warranty of
+ * MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the GNU
+ * Lesser General Public License for more details.
+ *
+ * You should have received a copy of the GNU Lesser General Public
+ * License along with this library. If not, see <https://www.gnu.org/licenses/>.
+ */
+
+#include "config.h"
+
+#include <fcntl.h>
+#include <glib-unix.h>
+#include <sched.h>
+#include <stdlib.h>
+#include <sys/mount.h>
+
+#include "glnx-errors.h"
+#include "glnx-fdio.h"
+#include "glnx-local-alloc.h"
+#include "glnx-shutil.h"
+#include "glnx-xattrs.h"
+#include "ot-admin-builtins.h"
+
+#define OSTREE_STATEOVERLAYS_DIR "/var/ostree/state-overlays"
+#define OSTREE_STATEOVERLAY_UPPER_DIR "upper"
+#define OSTREE_STATEOVERLAY_WORK_DIR "work"
+
+/* https://www.kernel.org/doc/html/latest/filesystems/overlayfs.html */
+#define OVERLAYFS_DIR_XATTR_OPAQUE "trusted.overlay.opaque"
+
+static GOptionEntry options[] = { { NULL } };
+
+static gboolean
+ensure_overlay_dirs (const char *overlay_dir, int *out_overlay_dfd, GCancellable *cancellable,
+                     GError **error)
+{
+  glnx_autofd int overlay_dfd = -1;
+  if (!glnx_shutil_mkdir_p_at_open (AT_FDCWD, overlay_dir, 0755, &overlay_dfd, cancellable, error))
+    return FALSE;
+
+  if (!glnx_shutil_mkdir_p_at (overlay_dfd, OSTREE_STATEOVERLAY_WORK_DIR, 0755, cancellable, error))
+    return FALSE;
+  if (!glnx_shutil_mkdir_p_at (overlay_dfd, OSTREE_STATEOVERLAY_UPPER_DIR, 0755, cancellable,
+                               error))
+    return FALSE;
+
+  *out_overlay_dfd = glnx_steal_fd (&overlay_dfd);
+  return TRUE;
+}
+
+static gboolean
+is_opaque_dir (int dfd, const char *dname, gboolean *out_is_opaque, GError **error)
+{
+  /* XXX: this is basically like a `glnx_lgetxattrat_allow_noent()`; upstream it */
+
+  char pathbuf[PATH_MAX];
+  snprintf (pathbuf, sizeof (pathbuf), "/proc/self/fd/%d/%s", dfd, dname);
+
+  ssize_t bytes_read, real_size;
+  if (TEMP_FAILURE_RETRY (bytes_read = lgetxattr (pathbuf, OVERLAYFS_DIR_XATTR_OPAQUE, NULL, 0))
+      < 0)
+    {
+      if (errno != ENODATA)
+        return glnx_throw_errno_prefix (error, "lgetxattr(%s)", OVERLAYFS_DIR_XATTR_OPAQUE);
+      *out_is_opaque = FALSE;
+      return TRUE;
+    }
+
+  g_autofree guint8 *buf = g_malloc (bytes_read);
+  if (TEMP_FAILURE_RETRY (real_size
+                          = lgetxattr (pathbuf, OVERLAYFS_DIR_XATTR_OPAQUE, buf, bytes_read))
+      < 0)
+    return glnx_throw_errno_prefix (error, "lgetxattr(%s)", OVERLAYFS_DIR_XATTR_OPAQUE);
+
+  *out_is_opaque = (real_size == 1 && buf[0] == 'y');
+  return TRUE;
+}
+
+static gboolean
+prune_upperdir_recurse (int lower_dfd, int upper_dfd, GCancellable *cancellable, GError **error)
+{
+  g_auto (GLnxDirFdIterator) dfd_iter = { 0 };
+  if (!glnx_dirfd_iterator_init_at (upper_dfd, ".", FALSE, &dfd_iter, error))
+    return FALSE;
+
+  while (TRUE)
+    {
+      struct dirent *dent = NULL;
+      if (!glnx_dirfd_iterator_next_dent_ensure_dtype (&dfd_iter, &dent, cancellable, error))
+        return FALSE;
+      if (dent == NULL)
+        break;
+
+      /* do we have an entry of the same name in the lowerdir? */
+      struct stat stbuf;
+      if (!glnx_fstatat_allow_noent (lower_dfd, dent->d_name, &stbuf, AT_SYMLINK_NOFOLLOW, error))
+        return FALSE;
+      if (errno == ENOENT)
+        continue; /* state file (i.e. upperdir only); carry on */
+
+      /* ok, it shadows; are they both directories? */
+      if (dent->d_type == DT_DIR && S_ISDIR (stbuf.st_mode))
+        {
+          /* is the directory opaque? */
+          gboolean is_opaque = FALSE;
+          if (!is_opaque_dir (upper_dfd, dent->d_name, &is_opaque, error))
+            return FALSE;
+
+          if (!is_opaque)
+            {
+              /* recurse */
+              glnx_autofd int lower_subdfd = -1;
+              if (!glnx_opendirat (lower_dfd, dent->d_name, FALSE, &lower_subdfd, error))
+                return FALSE;
+              glnx_autofd int upper_subdfd = -1;
+              if (!glnx_opendirat (upper_dfd, dent->d_name, FALSE, &upper_subdfd, error))
+                return FALSE;
+              if (!prune_upperdir_recurse (lower_subdfd, upper_subdfd, cancellable, error))
+                return glnx_prefix_error (error, "in %s", dent->d_name);
+
+              continue;
+            }
+
+          /* fallthrough; implicitly delete opaque directories */
+        }
+
+      /* any other case, we prune (this also implicitly covers whiteouts and opaque dirs) */
+      if (dent->d_type == DT_DIR)
+        {
+          if (!glnx_shutil_rm_rf_at (upper_dfd, dent->d_name, cancellable, error))
+            return FALSE;
+        }
+      /* just unlinkat(); saves one openat() call */
+      else if (!glnx_unlinkat (upper_dfd, dent->d_name, 0, error))
+        return FALSE;
+    }
+
+  return TRUE;
+}
+
+static gboolean
+prune_upperdir (int sysroot_fd, const char *deployment_path, const char *mountpath, int overlay_dfd,
+                GCancellable *cancellable, GError **error)
+{
+  glnx_autofd int lower_dfd = -1;
+  if (!glnx_opendirat (AT_FDCWD, mountpath, FALSE, &lower_dfd, error))
+    return FALSE;
+
+  glnx_autofd int upper_dfd = -1;
+  if (!glnx_opendirat (overlay_dfd, OSTREE_STATEOVERLAY_UPPER_DIR, FALSE, &upper_dfd, error))
+    return FALSE;
+
+  if (!prune_upperdir_recurse (lower_dfd, upper_dfd, cancellable, error))
+    return FALSE;
+
+  /* touch upperdir to mark prune as completed */
+  if (utimensat (overlay_dfd, OSTREE_STATEOVERLAY_UPPER_DIR, NULL, 0) < 0)
+    return glnx_throw_errno_prefix (error, "futimens(upper)");
+
+  return TRUE;
+}
+
+static gboolean
+mount_overlay (const char *mountpath, const char *name, GError **error)
+{
+  /* we could use /proc/self/... with overlay_dfd to avoid these allocations,
+   * but this gets stringified into the options field in the mount table, and
+   * being cryptic is not helpful */
+  g_autofree char *upperdir
+      = g_build_filename (OSTREE_STATEOVERLAYS_DIR, name, OSTREE_STATEOVERLAY_UPPER_DIR, NULL);
+  g_autofree char *workdir
+      = g_build_filename (OSTREE_STATEOVERLAYS_DIR, name, OSTREE_STATEOVERLAY_WORK_DIR, NULL);
+  g_autofree char *ovl_options
+      = g_strdup_printf ("lowerdir=%s,upperdir=%s,workdir=%s", mountpath, upperdir, workdir);
+  if (mount ("overlay", mountpath, "overlay", MS_SILENT, ovl_options) < 0)
+    return glnx_throw_errno_prefix (error, "mount(%s)", mountpath);
+
+  return TRUE;
+}
+
+/* Called by ostree-state-overlay@.service. */
+gboolean
+ot_admin_builtin_state_overlay (int argc, char **argv, OstreeCommandInvocation *invocation,
+                                GCancellable *cancellable, GError **error)
+{
+  g_autoptr (GOptionContext) context = g_option_context_new ("NAME MOUNTPATH");
+  g_autoptr (OstreeSysroot) sysroot = NULL;
+
+  /* First parse the args without loading the sysroot to see what options are
+   * set. */
+  if (!ostree_admin_option_context_parse (context, options, &argc, &argv,
+                                          OSTREE_ADMIN_BUILTIN_FLAG_NONE, invocation, &sysroot,
+                                          cancellable, error))
+    return FALSE;
+
+  if (argc < 3)
+    return glnx_throw (error, "Missing NAME or MOUNTPATH");
+
+  /* Sanity-check */
+  OstreeDeployment *booted_deployment = ostree_sysroot_get_booted_deployment (sysroot);
+  if (booted_deployment == NULL)
+    return glnx_throw (error, "Must be booted into an OSTree deployment");
+
+  const char *overlay_name = argv[1];
+  const char *mountpath = argv[2];
+
+  glnx_autofd int overlay_dfd = -1;
+  g_autofree char *overlay_dir = g_build_filename (OSTREE_STATEOVERLAYS_DIR, overlay_name, NULL);
+  if (!ensure_overlay_dirs (overlay_dir, &overlay_dfd, cancellable, error))
+    return FALSE;
+
+  struct stat stbuf_upper;
+  if (!glnx_fstatat (overlay_dfd, OSTREE_STATEOVERLAY_UPPER_DIR, &stbuf_upper, 0, error))
+    return FALSE;
+
+  /* We don't use "/" directly here because that may have e.g. an overlay
+   * slapped on from root.transient or composefs. */
+  g_autofree char *deployment_path
+      = ostree_sysroot_get_deployment_dirpath (sysroot, booted_deployment);
+  struct stat stbuf_lower;
+  if (!glnx_fstatat (ostree_sysroot_get_fd (sysroot), deployment_path, &stbuf_lower, 0, error))
+    return FALSE;
+
+  if (stbuf_upper.st_mtime < stbuf_lower.st_mtime)
+    {
+      /* the lowerdir was updated; prune the upperdir */
+      if (!prune_upperdir (ostree_sysroot_get_fd (sysroot), deployment_path, mountpath, overlay_dfd,
+                           cancellable, error))
+        return glnx_prefix_error (error, "Pruning upperdir for %s", overlay_name);
+    }
+
+  return mount_overlay (mountpath, overlay_name, error);
+}
diff --git a/src/ostree/ot-admin-builtins.h b/src/ostree/ot-admin-builtins.h
index 1775384e17..cd1472bf3d 100644
--- a/src/ostree/ot-admin-builtins.h
+++ b/src/ostree/ot-admin-builtins.h
@@ -50,6 +50,7 @@ BUILTINPROTO (upgrade);
 BUILTINPROTO (kargs);
 BUILTINPROTO (post_copy);
 BUILTINPROTO (lock_finalization);
+BUILTINPROTO (state_overlay);
 
 #undef BUILTINPROTO
 
diff --git a/src/ostree/ot-builtin-admin.c b/src/ostree/ot-builtin-admin.c
index 35a1e115c1..68a54751f0 100644
--- a/src/ostree/ot-builtin-admin.c
+++ b/src/ostree/ot-builtin-admin.c
@@ -42,6 +42,8 @@ static OstreeCommand admin_subcommands[] = {
     "Change the finalization locking state of the staged deployment" },
   { "boot-complete", OSTREE_BUILTIN_FLAG_NO_REPO | OSTREE_BUILTIN_FLAG_HIDDEN,
     ot_admin_builtin_boot_complete, "Internal command to run at boot after an update was applied" },
+  { "state-overlay", OSTREE_BUILTIN_FLAG_NO_REPO | OSTREE_BUILTIN_FLAG_HIDDEN,
+    ot_admin_builtin_state_overlay, "Internal command to assemble a state overlay" },
   { "init-fs", OSTREE_BUILTIN_FLAG_NO_REPO, ot_admin_builtin_init_fs,
     "Initialize a root filesystem" },
   { "instutil", OSTREE_BUILTIN_FLAG_NO_REPO | OSTREE_BUILTIN_FLAG_HIDDEN, ot_admin_builtin_instutil,
diff --git a/tests/kolainst/destructive/state-overlay.sh b/tests/kolainst/destructive/state-overlay.sh
new file mode 100755
index 0000000000..4442611e9f
--- /dev/null
+++ b/tests/kolainst/destructive/state-overlay.sh
@@ -0,0 +1,146 @@
+#!/bin/bash
+set -xeuo pipefail
+
+. ${KOLA_EXT_DATA}/libinsttest.sh
+
+case "${AUTOPKGTEST_REBOOT_MARK:-}" in
+  "")
+    # create a new ostree commit with some toplevel content
+    mkdir -p /var/tmp/rootfs/foobar
+    (cd /var/tmp/rootfs/foobar
+     touch an_empty_file
+     echo 'foobar' > a_non_empty_file
+     echo 'foobar' > another_file
+     ln -s an_empty_file a_working_symlink
+     ln -s enoent a_broken_symlink
+     mkdir an_empty_subdir
+     mkdir a_nonempty_subdir
+     echo foobar > a_nonempty_subdir/foobar
+     mkdir -p a_deeply/deeply/nested/subdir
+     echo foobar > a_deeply/deeply/nested/subdir/foobar
+
+     # test content deletion
+     mkdir a_dir_to_delete
+     touch a_file_to_delete
+     ln -s enoent a_symlink_to_delete
+
+     # opaque directory
+     mkdir a_dir_to_make_opaque
+     touch a_dir_to_make_opaque/base
+    )
+
+    ostree commit --no-bindings -P -b foobar --tree=ref="${host_commit}" --tree=dir=/var/tmp/rootfs
+    rpm-ostree rebase :foobar
+    systemctl enable ostree-state-overlay@foobar.service
+    /tmp/autopkgtest-reboot "2"
+    ;;
+  "2")
+    if ! test -d /foobar; then
+      fatal "no /foobar toplevel dir"
+    fi
+    if [[ $(findmnt /foobar -no SOURCE) != overlay ]]; then
+      fatal "/foobar is not overlay"
+    fi
+
+    cd /foobar
+
+    # create some state files (i.e. not shadowing)
+    echo "state" > state
+    echo "state" > a_nonempty_subdir/state
+    echo "state" > a_deeply/deeply/nested/subdir/state
+    ln -s foobar state_symlink
+    mkdir state_dir
+
+    # and shadow some base files
+
+    # make empty file non-empty
+    echo shadow > an_empty_file
+    # make a file become a directory
+    rm a_non_empty_file && mkdir a_non_empty_file
+    # make a file become a symlink
+    ln -sf some_target another_file
+    # override a working symlink
+    ln -sf another_file a_working_symlink
+    # override a non-working symlink
+    ln -sf enoent2 a_broken_symlink
+    # make dir become a file
+    rmdir an_empty_subdir
+    touch an_empty_subdir
+    # override file in a shallow subdir
+    echo shadow > a_nonempty_subdir/foobar
+    # override file in a deep subdir
+    echo shadow > a_deeply/deeply/nested/subdir/foobar
+    # delete some base files
+    rmdir a_dir_to_delete
+    rm a_file_to_delete
+    rm a_symlink_to_delete
+    # opaque directory
+    rm -rf a_dir_to_make_opaque
+    mkdir a_dir_to_make_opaque
+    touch a_dir_to_make_opaque/state
+
+    # check that rebooting without upgrading maintains state
+    /tmp/autopkgtest-reboot "3"
+    ;;
+  "3")
+    cd /foobar
+
+    # check state is still there
+    assert_file_has_content state state
+    assert_file_has_content a_nonempty_subdir/state state
+    assert_file_has_content a_deeply/deeply/nested/subdir/state state
+    [[ $(readlink state_symlink) == foobar ]]
+    test -d state_dir
+
+    # check shadowings
+    assert_file_has_content an_empty_file shadow
+    test -d a_non_empty_file
+    [[ $(readlink another_file) == some_target ]]
+    [[ $(readlink a_working_symlink) == another_file ]]
+    [[ $(readlink a_broken_symlink) == enoent2 ]]
+    test -f an_empty_subdir
+    assert_file_has_content a_nonempty_subdir/foobar shadow
+    assert_file_has_content a_deeply/deeply/nested/subdir/foobar shadow
+    ! test -e a_dir_to_delete
+    ! test -e a_file_to_delete
+    ! test -e a_symlink_to_delete
+    # opaque directory
+    test -d a_dir_to_make_opaque
+    ! test -e a_dir_to_make_opaque/base
+    test -e a_dir_to_make_opaque/state
+
+    # now reboot into an upgrade
+    ostree commit --no-bindings -P -b foobar --tree=ref="${host_commit}"
+    rpm-ostree upgrade
+    /tmp/autopkgtest-reboot "4"
+    ;;
+  "4")
+    cd /foobar
+
+    # check state is still there
+    assert_file_has_content state state
+    assert_file_has_content a_nonempty_subdir/state state
+    assert_file_has_content a_deeply/deeply/nested/subdir/state state
+    [[ $(readlink state_symlink) == foobar ]]
+    test -d state_dir
+
+    # check shadowings are gone
+    test -f an_empty_file
+    assert_file_has_content a_non_empty_file foobar
+    assert_file_has_content another_file foobar
+    [[ $(readlink a_working_symlink) == an_empty_file ]]
+    [[ $(readlink a_broken_symlink) == enoent ]]
+    test -d an_empty_subdir
+    test -d a_nonempty_subdir
+    assert_file_has_content a_nonempty_subdir/foobar foobar
+    assert_file_has_content a_deeply/deeply/nested/subdir/foobar foobar
+    test -d a_dir_to_delete
+    test -f a_file_to_delete
+    test -L a_symlink_to_delete
+    # opaque directory
+    test -d a_dir_to_make_opaque
+    test -e a_dir_to_make_opaque/base
+    ! test -e a_dir_to_make_opaque/state
+    ;;
+  *) fatal "Unexpected AUTOPKGTEST_REBOOT_MARK=${AUTOPKGTEST_REBOOT_MARK}" ;;
+esac