diff --git a/test/functional/mempool_expiry.py b/test/functional/mempool_expiry.py
new file mode 100755
index 0000000000..8b9b7b155a
--- /dev/null
+++ b/test/functional/mempool_expiry.py
@@ -0,0 +1,100 @@
+#!/usr/bin/env python3
+# Copyright (c) 2020 The Bitcoin Core developers
+# Distributed under the MIT software license, see the accompanying
+# file COPYING or http://www.opensource.org/licenses/mit-license.php.
+"""Tests that a mempool transaction expires after a given timeout and that its
+children are removed as well.
+
+Both the default expiry timeout defined by DEFAULT_MEMPOOL_EXPIRY and a user
+definable expiry timeout via the '-mempoolexpiry=<n>' command line argument
+(<n> is the timeout in hours) are tested.
+"""
+
+from datetime import timedelta
+
+from test_framework.test_framework import BitcoinTestFramework
+from test_framework.util import (
+    assert_equal,
+    assert_raises_rpc_error,
+    find_vout_for_address,
+)
+
+DEFAULT_MEMPOOL_EXPIRY = 336  # hours
+CUSTOM_MEMPOOL_EXPIRY = 10  # hours
+
+
+class MempoolExpiryTest(BitcoinTestFramework):
+    def set_test_params(self):
+        self.num_nodes = 1
+
+    def skip_test_if_missing_module(self):
+        self.skip_if_no_wallet()
+
+    def test_transaction_expiry(self, timeout):
+        """Tests that a transaction expires after the expiry timeout and its
+        children are removed as well."""
+        node = self.nodes[0]
+
+        # Send a parent transaction that will expire.
+        parent_address = node.getnewaddress()
+        parent_txid = node.sendtoaddress(parent_address, 1.0)
+
+        # Set the mocktime to the arrival time of the parent transaction.
+        entry_time = node.getmempoolentry(parent_txid)['time']
+        node.setmocktime(entry_time)
+
+        # Create child transaction spending the parent transaction
+        vout = find_vout_for_address(node, parent_txid, parent_address)
+        inputs = [{'txid': parent_txid, 'vout': vout}]
+        outputs = {node.getnewaddress(): 0.99}
+        child_raw = node.createrawtransaction(inputs, outputs)
+        child_signed = node.signrawtransactionwithwallet(child_raw)['hex']
+
+        # Let half of the timeout elapse and broadcast the child transaction.
+        half_expiry_time = entry_time + int(60 * 60 * timeout/2)
+        node.setmocktime(half_expiry_time)
+        child_txid = node.sendrawtransaction(child_signed)
+        self.log.info('Broadcast child transaction after {} hours.'.format(
+            timedelta(seconds=(half_expiry_time-entry_time))))
+
+        # Let most of the timeout elapse and check that the parent tx is still
+        # in the mempool.
+        nearly_expiry_time = entry_time + 60 * 60 * timeout - 5
+        node.setmocktime(nearly_expiry_time)
+        # Expiry of mempool transactions is only checked when a new transaction
+        # is added to the to the mempool.
+        node.sendtoaddress(node.getnewaddress(), 1.0)
+        self.log.info('Test parent tx not expired after {} hours.'.format(
+            timedelta(seconds=(nearly_expiry_time-entry_time))))
+        assert_equal(entry_time, node.getmempoolentry(parent_txid)['time'])
+
+        # Transaction should be evicted from the mempool after the expiry time
+        # has passed.
+        expiry_time = entry_time + 60 * 60 * timeout + 5
+        node.setmocktime(expiry_time)
+        # Expiry of mempool transactions is only checked when a new transaction
+        # is added to the to the mempool.
+        node.sendtoaddress(node.getnewaddress(), 1.0)
+        self.log.info('Test parent tx expiry after {} hours.'.format(
+            timedelta(seconds=(expiry_time-entry_time))))
+        assert_raises_rpc_error(-5, 'Transaction not in mempool',
+                                node.getmempoolentry, parent_txid)
+
+        # The child transaction should be removed from the mempool as well.
+        self.log.info('Test child tx is evicted as well.')
+        assert_raises_rpc_error(-5, 'Transaction not in mempool',
+                                node.getmempoolentry, child_txid)
+
+    def run_test(self):
+        self.log.info('Test default mempool expiry timeout of %d hours.' %
+                      DEFAULT_MEMPOOL_EXPIRY)
+        self.test_transaction_expiry(DEFAULT_MEMPOOL_EXPIRY)
+
+        self.log.info('Test custom mempool expiry timeout of %d hours.' %
+                      CUSTOM_MEMPOOL_EXPIRY)
+        self.restart_node(0, ['-mempoolexpiry=%d' % CUSTOM_MEMPOOL_EXPIRY])
+        self.test_transaction_expiry(CUSTOM_MEMPOOL_EXPIRY)
+
+
+if __name__ == '__main__':
+    MempoolExpiryTest().main()
diff --git a/test/functional/test_runner.py b/test/functional/test_runner.py
index ea8a340081..06d939afb7 100755
--- a/test/functional/test_runner.py
+++ b/test/functional/test_runner.py
@@ -175,6 +175,7 @@ BASE_SCRIPTS = [
     'wallet_balance.py',
     'feature_nulldummy.py',
     'mempool_accept.py',
+    'mempool_expiry.py',
     'wallet_import_rescan.py',
     'wallet_import_with_label.py',
     'rpc_bind.py --ipv4',