diff --git a/lib/bundler.js b/lib/bundler.js
index e278488b95..8a1c90d9a4 100644
--- a/lib/bundler.js
+++ b/lib/bundler.js
@@ -397,9 +397,10 @@ _.extend(Bundle.prototype, {
       pkg.on_use_handler(inst.api, where);
   },
 
-  includeTests: function (packageName) {
+  includeTests: function (packageOrPackageName) {
     var self = this;
-    var pkg = packages.get(self.releaseManifest, packageName);
+    // 'packages.get' is a noop if 'packageOrPackageName' is a Package object.
+    var pkg = packages.get(self.releaseManifest, packageOrPackageName);
     if (self.tests_included[pkg.id])
       return;
     self.tests_included[pkg.id] = true;
@@ -766,8 +767,8 @@ _.extend(Bundle.prototype, {
  *     'symlink' : symlink from a prebuild local installation. used
  *                 by `meteor run`
  *
- * - testPackages : array of package names whose tests should be included
- *   in this bundle
+ * - testPackages : array of package objects or package names whose
+ *   tests should be included in this bundle
  *
  * - versionOverride : (for tests) a meteor release version to use
  *   instead of reading from .meteor/version
@@ -793,8 +794,8 @@ exports.bundle = function (app_dir, output_path, options) {
 
     // Include tests if requested
     if (options.testPackages) {
-      _.each(options.testPackages, function(packageName) {
-        bundle.includeTests(packageName);
+      _.each(options.testPackages, function(packageOrPackageName) {
+        bundle.includeTests(packageOrPackageName);
       });
     }
 
diff --git a/lib/meteor.js b/lib/meteor.js
index c2819b1853..b1574183e2 100644
--- a/lib/meteor.js
+++ b/lib/meteor.js
@@ -153,13 +153,21 @@ Fiber(function () {
       var opt = require('optimist')
             .alias('port', 'p').default('port', 3000)
             .describe('port', 'Port to listen on. NOTE: Also uses port N+1 and N+2.')
-            .describe('release', 'Meteor release version to test.')
-            .describe('deploy', 'Optionally, specify a domain to deploy to instead of running locally.')
+            .describe('deploy', 'Optionally, specify a domain to deploy to, rather than running locally.')
             .boolean('once') // See #Once
             .usage(
-              "Usage: meteor test-packages [options] [comma delimited packages]\n" +
+              "Usage: \n" +
                 "\n" +
-                "Run unit tests for packages. Point your browser to localhost:3000 to see results.");
+                "meteor test-packages [--release=x.y.z] --package-dir=<path to local package> [options]\n" +
+                "    Runs unit tests on one package located on disk.\n" +
+                "\n" +
+                "meteor test-packages [--release=x.y.z] [comma delimited package names] [options]\n" +
+                "    Runs unit tests for a set of packages.\n" +
+                "\n" +
+                "You must either pass the --release option, or be in a git checkout of Meteor,\n" +
+                "in which cases local packages are loaded.\n" +
+                "\n" +
+                "Point your browser to localhost:3000 to run tests and see results.\n");
 
       var new_argv = opt.argv;
 
@@ -172,14 +180,26 @@ Fiber(function () {
       var releaseVersion = new_argv['release'];
 
       var testPackages;
-      if (new_argv._[1]) {
-        testPackages = new_argv._[1].split(',');
+      if (new_argv["package-dir"]) {
+        var packageDir = path.resolve(new_argv["package-dir"], "."); // strips trailing path.sep
+        // was important to strip trailing path.sep, otherwise we'd get a package named "foo/"
+        var packageName = path.basename(packageDir);
+        testPackages = [packages.loadFromDir(packageName, packageDir)];
       } else {
-        if (releaseVersion) {
-          var releaseManifest = warehouse.releaseManifestByVersion(releaseVersion);
-          testPackages = _.keys(packages.list(releaseManifest));
+        if (new_argv._[1]) {
+          testPackages = new_argv._[1].split(',');
         } else {
-          testPackages = _.keys(packages.list());
+          if (releaseVersion) {
+            var releaseManifest = warehouse.releaseManifestByVersion(releaseVersion);
+            testPackages = _.keys(packages.list(releaseManifest));
+          } else {
+            if (files.in_checkout()) {
+              testPackages = _.keys(packages.list());
+            } else {
+              process.stdout.write("Please specify a release version.");
+              process.exit(1);
+            }
+          }
         }
       }
 
diff --git a/tools/cli-test.sh b/tools/cli-test.sh
index 1345b4b3bb..155b135cd7 100755
--- a/tools/cli-test.sh
+++ b/tools/cli-test.sh
@@ -142,10 +142,30 @@ sleep 2 # need to make sure these kills take effect
 
 echo "... test-packages"
 
-if [ ! "$TEST_INSTALLED_METEOR" ]; then
-  $METEOR test-packages -p $PORT >> $OUTPUT 2>&1 &
+mkdir -p "$TMPDIR/local-packages/die-now/"
+cat > "$TMPDIR/local-packages/die-now/package.js" <<EOF
+Package.on_test(function (api) {
+  api.use('deps'); // try to use a core package
+  console.log("Dying");
+  process.exit(0);
+});
+EOF
+
+if [ "$TEST_INSTALLED_METEOR" ]; then
+  $METEOR test-packages --release=0.0.1 -p $PORT --package-dir="$TMPDIR/local-packages/die-now/" | grep Dying >> $OUTPUT 2>&1
 else
+  $METEOR test-packages -p $PORT --package-dir="$TMPDIR/local-packages/die-now/" | grep Dying >> $OUTPUT 2>&1
+fi
+# since the server process was killed via 'process.exit', mongo is still running.
+ps ax | grep -e "$MONGOMARK" | grep -v grep | awk '{print $1}' | xargs kill || true
+sleep 2 # make sure mongo is dead
+
+
+if [ "$TEST_INSTALLED_METEOR" ]; then
+  ( ! $METEOR test-packages -p $PORT ) | grep "Please specify a release version" >> $OUTPUT 2>&1
   $METEOR test-packages --release=0.0.1 -p $PORT >> $OUTPUT 2>&1 &
+else
+  $METEOR test-packages -p $PORT >> $OUTPUT 2>&1 &
 fi
 
 METEOR_PID=$!
diff --git a/tools/run-all-tests.sh b/tools/run-all-tests.sh
index 04f4766a64..faab261a91 100755
--- a/tools/run-all-tests.sh
+++ b/tools/run-all-tests.sh
@@ -21,7 +21,8 @@ TARGET_DIR=$ENGINE_DIR admin/build-engine-tree.sh
 export TEST_INSTALLED_METEOR=1 # to use the --release option on `meteor test-packages`
 export TEST_WAREHOUSE_DIR=$(make_temp_dir meteor-installed-cli-tests-warehouse) # run with empty warehouse
 METEOR_DIR=$ENGINE_DIR/bin ./cli-test.sh
-
+unset TEST_INSTALLED_METEOR
+unset TEST_WAREHOUSE_DIR
 
 ## Run bundler unit tests
 ./bundler-test.sh