diff --git a/Makefile-switchroot.am b/Makefile-switchroot.am
index 71a3cbda57..1e458e0e2c 100644
--- a/Makefile-switchroot.am
+++ b/Makefile-switchroot.am
@@ -63,6 +63,11 @@ ostree_remount_SOURCES = \
 ostree_remount_CPPFLAGS = $(AM_CPPFLAGS) $(OT_INTERNAL_GIO_UNIX_CFLAGS) -Isrc/switchroot -I$(srcdir)/src/libotcore -I$(srcdir)/src/libotutil -I$(srcdir)/libglnx
 ostree_remount_LDADD = $(AM_LDFLAGS) $(OT_INTERNAL_GIO_UNIX_LIBS) libotcore.la libotutil.la libglnx.la
 
+if USE_SELINUX
+ostree_remount_CPPFLAGS += $(OT_DEP_SELINUX_CFLAGS)
+ostree_remount_LDADD += $(OT_DEP_SELINUX_LIBS)
+endif
+
 if USE_COMPOSEFS
 ostree_prepare_root_LDADD += libcomposefs.la
 endif
diff --git a/man/ostree-prepare-root.xml b/man/ostree-prepare-root.xml
index 820e6a278e..03bf022e27 100644
--- a/man/ostree-prepare-root.xml
+++ b/man/ostree-prepare-root.xml
@@ -113,6 +113,10 @@ License along with this library. If not, see <https://www.gnu.org/licenses/>.
                 <term><varname>sysroot.readonly</varname></term>
                 <listitem><para>A boolean value; the default is <literal>false</literal>.  If this is set to <literal>true</literal>, then the <literal>/sysroot</literal> mount point is mounted read-only.</para></listitem>
             </varlistentry>
+            <varlistentry>
+                <term><varname>etc.transient</varname></term>
+                <listitem><para>A boolean value; the default is <literal>false</literal>.  If this is set to <literal>true</literal>, then the <literal>/etc</literal> mount point is mounted transiently i.e. a non-persistent location.</para></listitem>
+            </varlistentry>
             <varlistentry>
                 <term><varname>composefs.enabled</varname></term>
                 <listitem><para>This can be <literal>yes</literal>, <literal>no</literal>. <literal>maybe</literal> or
diff --git a/src/libotcore/otcore.h b/src/libotcore/otcore.h
index ba162b8d14..1593e7b77f 100644
--- a/src/libotcore/otcore.h
+++ b/src/libotcore/otcore.h
@@ -72,3 +72,5 @@ GKeyFile *otcore_load_config (int rootfs, const char *filename, GError **error);
 #define OTCORE_RUN_BOOTED_KEY_COMPOSEFS_SIGNATURE "composefs.signed"
 // This key will be present if the sysroot-ro flag was found
 #define OTCORE_RUN_BOOTED_KEY_SYSROOT_RO "sysroot-ro"
+
+#define OTCORE_RUN_BOOTED_KEY_TRANSIENT_ETC "transient-etc"
diff --git a/src/switchroot/ostree-prepare-root.c b/src/switchroot/ostree-prepare-root.c
index ca4ebb9914..27d06fa7f8 100644
--- a/src/switchroot/ostree-prepare-root.c
+++ b/src/switchroot/ostree-prepare-root.c
@@ -87,6 +87,9 @@
 #define SYSROOT_KEY "sysroot"
 #define READONLY_KEY "readonly"
 
+#define ETC_KEY "etc"
+#define TRANSIENT_KEY "transient"
+
 #define COMPOSEFS_KEY "composefs"
 #define ENABLED_KEY "enabled"
 #define KEYPATH_KEY "keypath"
@@ -547,13 +550,51 @@ main (int argc, char *argv[])
    * the deployment needs to be created and remounted as read/write. */
   if (sysroot_readonly || using_composefs)
     {
-      /* Bind-mount /etc (at deploy path), and remount as writable. */
-      if (mount ("etc", TMP_SYSROOT "/etc", NULL, MS_BIND | MS_SILENT, NULL) < 0)
-        err (EXIT_FAILURE, "failed to prepare /etc bind-mount at /sysroot.tmp/etc");
-      if (mount (TMP_SYSROOT "/etc", TMP_SYSROOT "/etc", NULL, MS_BIND | MS_REMOUNT | MS_SILENT,
-                 NULL)
-          < 0)
-        err (EXIT_FAILURE, "failed to make writable /etc bind-mount at /sysroot.tmp/etc");
+      gboolean etc_transient = FALSE;
+      if (!ot_keyfile_get_boolean_with_default (config, ETC_KEY, TRANSIENT_KEY, FALSE,
+                                                &etc_transient, &error))
+        errx (EXIT_FAILURE, "Failed to parse etc.transient value: %s", error->message);
+
+      if (etc_transient)
+        {
+          char *ovldir = "/run/ostree/transient-etc";
+
+          g_variant_builder_add (&metadata_builder, "{sv}", OTCORE_RUN_BOOTED_KEY_TRANSIENT_ETC,
+                                 g_variant_new_string (ovldir));
+
+          char *lowerdir = "usr/etc";
+          if (using_composefs)
+            lowerdir = TMP_SYSROOT "/usr/etc";
+
+          g_autofree char *upperdir = g_build_filename (ovldir, "upper", NULL);
+          g_autofree char *workdir = g_build_filename (ovldir, "work", NULL);
+
+          struct
+          {
+            const char *path;
+            int mode;
+          } subdirs[] = { { ovldir, 0700 }, { upperdir, 0755 }, { workdir, 0755 } };
+          for (int i = 0; i < G_N_ELEMENTS (subdirs); i++)
+            {
+              if (mkdirat (AT_FDCWD, subdirs[i].path, subdirs[i].mode) < 0)
+                err (EXIT_FAILURE, "Failed to create dir %s", subdirs[i].path);
+            }
+
+          g_autofree char *ovl_options
+              = g_strdup_printf ("lowerdir=%s,upperdir=%s,workdir=%s", lowerdir, upperdir, workdir);
+          if (mount ("overlay", TMP_SYSROOT "/etc", "overlay", MS_SILENT, ovl_options) < 0)
+            err (EXIT_FAILURE, "failed to mount transient etc overlayfs");
+        }
+      else
+        {
+          /* Bind-mount /etc (at deploy path), and remount as writable. */
+          if (mount ("etc", TMP_SYSROOT "/etc", NULL, MS_BIND | MS_SILENT, NULL) < 0)
+            err (EXIT_FAILURE, "failed to prepare /etc bind-mount at /sysroot.tmp/etc");
+          if (mount (TMP_SYSROOT "/etc", TMP_SYSROOT "/etc", NULL, MS_BIND | MS_REMOUNT | MS_SILENT,
+                     NULL)
+              < 0)
+            err (EXIT_FAILURE, "failed to make writable /etc bind-mount at /sysroot.tmp/etc");
+        }
     }
 
   /* Prepare /usr.
diff --git a/src/switchroot/ostree-remount.c b/src/switchroot/ostree-remount.c
index d8b01f6858..497603e9d9 100644
--- a/src/switchroot/ostree-remount.c
+++ b/src/switchroot/ostree-remount.c
@@ -35,6 +35,9 @@
 #include <sys/stat.h>
 #include <sys/statvfs.h>
 #include <unistd.h>
+#ifdef HAVE_SELINUX
+#include <selinux/restorecon.h>
+#endif
 
 #include "ostree-mount-util.h"
 #include "otcore.h"
@@ -76,6 +79,50 @@ do_remount (const char *target, bool writable)
   printf ("Remounted %s: %s\n", writable ? "rw" : "ro", target);
 }
 
+/* Relabel the directory $real_path, which is going to be an overlayfs mount,
+ * based on the content of an overlayfs upperdirectory that is in use by the mount.
+ * The goal is that we relabel in the overlay mount all the files that have been
+ * modified (directly or via parent copyup operations) since the overlayfs was
+ * mounted. This will be used for the /etc overlayfs mount where no selinux labels
+ * are set before selinux policy is loaded.
+ */
+static void
+relabel_dir_for_upper (const char *upper_path, const char *real_path, gboolean is_dir)
+{
+#ifdef HAVE_SELINUX
+  if (selinux_restorecon (real_path, 0))
+    err (EXIT_FAILURE, "Failed to relabel %s", real_path);
+
+  if (!is_dir)
+    return;
+
+  g_auto (GLnxDirFdIterator) dfd_iter = {
+    0,
+  };
+
+  if (!glnx_dirfd_iterator_init_at (AT_FDCWD, upper_path, FALSE, &dfd_iter, NULL))
+    err (EXIT_FAILURE, "Failed to open upper directory %s for relabeling", upper_path);
+
+  while (TRUE)
+    {
+      struct dirent *dent;
+
+      if (!glnx_dirfd_iterator_next_dent_ensure_dtype (&dfd_iter, &dent, NULL, NULL))
+        {
+          err (EXIT_FAILURE, "Failed to read upper directory %s for relabelin", upper_path);
+          break;
+        }
+
+      if (dent == NULL)
+        break;
+
+      g_autofree char *upper_child = g_build_filename (upper_path, dent->d_name, NULL);
+      g_autofree char *real_child = g_build_filename (real_path, dent->d_name, NULL);
+      relabel_dir_for_upper (upper_child, real_child, dent->d_type == DT_DIR);
+    }
+#endif
+}
+
 int
 main (int argc, char *argv[])
 {
@@ -119,6 +166,52 @@ main (int argc, char *argv[])
   if (mount ("none", "/sysroot", NULL, MS_REC | MS_PRIVATE, NULL) < 0)
     perror ("warning: While remounting /sysroot MS_PRIVATE");
 
+  const char *transient_etc = NULL;
+  g_variant_dict_lookup (ostree_run_metadata, OTCORE_RUN_BOOTED_KEY_TRANSIENT_ETC, "&s",
+                         &transient_etc);
+
+  if (transient_etc)
+    {
+      /* If the initramfs created any files in /etc (directly or via overlay copy-up) they
+       * will be unlabeled, because the selinux policy is not loaded until after the
+       * pivot-root. So, for all files in the upper dir, relabel the corresponding overlay
+       * file.
+       *
+       * Also, note that during boot systemd will create a /run/machine-id ->
+       * /etc/machine-id bind mount (as /etc is read-only early on). It will then later
+       * replace this mount with a real one (in systemd-machine-id-commit.service).
+       *
+       * We need to label the actual overlayfs file, not the temporary bind-mount. To do
+       * this we unmount the covering mount before relabeling, but we do so in a temporary
+       * private namespace to avoid affecting other parts of the system.
+       */
+
+      glnx_autofd int initial_ns_fd = -1;
+      if (g_file_test ("/run/machine-id", G_FILE_TEST_EXISTS)
+          && g_file_test ("/etc/machine-id", G_FILE_TEST_EXISTS))
+        {
+          initial_ns_fd = open ("/proc/self/ns/mnt", O_RDONLY | O_NOCTTY | O_CLOEXEC);
+          if (initial_ns_fd < 0)
+            err (EXIT_FAILURE, "Failed to open initial namespace");
+
+          if (unshare (CLONE_NEWNS) < 0)
+            err (EXIT_FAILURE, "Failed to unshare initial namespace");
+
+          /* Ensure unmount is not propagated */
+          if (mount ("none", "/etc", NULL, MS_REC | MS_PRIVATE, NULL) < 0)
+            err (EXIT_FAILURE, "warning: While remounting /etc MS_PRIVATE");
+
+          if (umount2 ("/etc/machine-id", MNT_DETACH) < 0)
+            err (EXIT_FAILURE, "Failed to unmount machine-id");
+        }
+
+      g_autofree char *upper = g_build_filename (transient_etc, "upper", NULL);
+      relabel_dir_for_upper (upper, "/etc", TRUE);
+
+      if (initial_ns_fd != -1 && setns (initial_ns_fd, CLONE_NEWNS) < 0)
+        err (EXIT_FAILURE, "Failed to join initial namespace");
+    }
+
   gboolean root_is_composefs = FALSE;
   g_variant_dict_lookup (ostree_run_metadata, OTCORE_RUN_BOOTED_KEY_COMPOSEFS, "b",
                          &root_is_composefs);
@@ -140,8 +233,9 @@ main (int argc, char *argv[])
   do_remount ("/sysroot", !sysroot_configured_readonly);
 
   /* And also make sure to make /etc rw again. We make this conditional on
-   * sysroot_configured_readonly because only in that case is it a bind-mount. */
-  if (sysroot_configured_readonly)
+   * sysroot_configured_readonly && !transient_etc because only in that case is it a
+   * bind-mount. */
+  if (sysroot_configured_readonly && !transient_etc)
     do_remount ("/etc", true);
 
   /* If /var was created as as an OSTree default bind mount (instead of being a separate