diff --git a/scripts/functional_tests.py b/scripts/functional_tests.py
index 7ec71a99d5e..dd5b7bad2fa 100644
--- a/scripts/functional_tests.py
+++ b/scripts/functional_tests.py
@@ -94,7 +94,6 @@ def main():
     datatypes_conf_override = None
 
     use_test_file_dir = not (testing_migrated_tools or testing_installed_tools)
-    galaxy_config = driver_util.setup_galaxy_config(use_test_file_dir=use_test_file_dir)
     if not use_test_file_dir:
         # Store a jsonified dictionary of tool_id : GALAXY_TEST_FILE_DIR pairs.
         galaxy_tool_shed_test_file = 'shed_tools_dict'
@@ -132,7 +131,6 @@ def main():
             default_data_manager_config = data_manager_config
     data_manager_config_file = "%s,test/functional/tools/sample_data_manager_conf.xml" % default_data_manager_config
     shed_tool_data_table_config = 'config/shed_tool_data_table_conf.xml'
-    tool_dependency_dir = os.environ.get( 'GALAXY_TOOL_DEPENDENCY_DIR', None )
     galaxy_test_tmp_dir = os.environ.get( 'GALAXY_TEST_TMP_DIR', None )
     if galaxy_test_tmp_dir is None:
         galaxy_test_tmp_dir = tempfile.mkdtemp()
@@ -146,6 +144,7 @@ def main():
 
     if start_server:
         tempdir = tempfile.mkdtemp( dir=galaxy_test_tmp_dir )
+        galaxy_config = driver_util.setup_galaxy_config(tempdir, use_test_file_dir=use_test_file_dir)
         # Configure the database path.
         galaxy_db_path = driver_util.database_files_path(tempdir)
 
@@ -199,8 +198,6 @@ def main():
         if not database_connection.startswith( 'sqlite://' ):
             kwargs[ 'database_engine_option_max_overflow' ] = '20'
             kwargs[ 'database_engine_option_pool_size' ] = '10'
-        if tool_dependency_dir is not None:
-            kwargs[ 'tool_dependency_dir' ] = tool_dependency_dir
         if datatypes_conf_override:
             kwargs[ 'datatypes_config_file' ] = datatypes_conf_override
         # If the user has passed in a path for the .ini file, do not overwrite it.
diff --git a/test/base/driver_util.py b/test/base/driver_util.py
index 1b61b21be66..c2bdc316d15 100644
--- a/test/base/driver_util.py
+++ b/test/base/driver_util.py
@@ -66,7 +66,7 @@ def build_logger():
     return log
 
 
-def setup_galaxy_config(use_test_file_dir=False):
+def setup_galaxy_config(tmpdir, use_test_file_dir=False):
     """Setup environment and build config for test Galaxy instance."""
     if use_test_file_dir:
         galaxy_test_file_dir = os.environ.get('GALAXY_TEST_FILE_DIR', GALAXY_TEST_FILE_DIR)
@@ -83,7 +83,10 @@ def setup_galaxy_config(use_test_file_dir=False):
     else:
         user_library_import_dir = None
         library_import_dir = None
-    return dict(
+    tool_dependency_dir = os.environ.get('GALAXY_TOOL_DEPENDENCY_DIR', None)
+    if tool_dependency_dir is None:
+        tool_dependency_dir = tempfile.mkdtemp(dir=tmpdir, prefix="tool_dependencies")
+    config = dict(
         admin_users='test@bx.psu.edu',
         allow_library_path_paste=True,
         allow_user_creation=True,
@@ -102,6 +105,12 @@ def setup_galaxy_config(use_test_file_dir=False):
         use_heartbeat=False,
         user_library_import_dir=user_library_import_dir,
     )
+    if tool_dependency_dir:
+        config["tool_dependency_dir"] = tool_dependency_dir
+        # Used by shed's twill dependency stuff - todo read from
+        # Galaxy's config API.
+        os.environ["GALAXY_TEST_TOOL_DEPENDENCY_DIR"] = tool_dependency_dir
+    return config
 
 
 def nose_config_and_run( argv=None, env=None, ignore_files=[], plugins=None ):
diff --git a/test/tool_shed/functional_tests.py b/test/tool_shed/functional_tests.py
index 7e004888513..9864fd55ab6 100644
--- a/test/tool_shed/functional_tests.py
+++ b/test/tool_shed/functional_tests.py
@@ -86,8 +86,6 @@ def main():
     galaxy_tempfiles = tempfile.mkdtemp( dir=tool_shed_test_tmp_dir )
     galaxy_shed_tool_path = tempfile.mkdtemp( dir=tool_shed_test_tmp_dir )
     galaxy_migrated_tool_path = tempfile.mkdtemp( dir=tool_shed_test_tmp_dir )
-    galaxy_tool_dependency_dir = tempfile.mkdtemp( dir=tool_shed_test_tmp_dir )
-    os.environ[ 'GALAXY_TEST_TOOL_DEPENDENCY_DIR' ] = galaxy_tool_dependency_dir
     hgweb_config_dir = hgweb_config_file_path
     os.environ[ 'TEST_HG_WEB_CONFIG_DIR' ] = hgweb_config_dir
     print "Directory location for hgweb.config:", hgweb_config_dir
@@ -188,11 +186,10 @@ def main():
                        shed_tool_data_table_config=shed_tool_data_table_conf_file,
                        shed_tool_path=galaxy_shed_tool_path,
                        tool_data_path=tool_data_path,
-                       tool_dependency_dir=galaxy_tool_dependency_dir,
                        tool_config_file=[ galaxy_tool_conf_file, galaxy_shed_tool_conf_file ],
                        tool_sheds_config_file=galaxy_tool_sheds_conf_file,
                        tool_data_table_config_path=galaxy_tool_data_table_conf_file )
-        kwargs.setup_galaxy_config(use_test_file_dir=False)
+        kwargs.update(driver_util.setup_galaxy_config(tool_shed_test_tmp_dir, use_test_file_dir=False))
         kwargs.update(install_database_conf)
         # ---- Build Galaxy Application --------------------------------------------------
         if not galaxy_database_connection.startswith( 'sqlite://' ):