diff --git a/test/unit/XRayErrorTest.js b/test/unit/XRayErrorTest.js
new file mode 100644
index 0000000..465b02a
--- /dev/null
+++ b/test/unit/XRayErrorTest.js
@@ -0,0 +1,107 @@
+/**
+ * Copyright 2025 Amazon.com, Inc. or its affiliates. All Rights Reserved.
+ */
+
+'use strict';
+
+require('should');
+const { formatted } = require('lambda-runtime/XRayError.js');
+
+describe('XRayFormattedCause', () => {
+  it('should handle a basic error with stack trace', () => {
+    const error = new Error('Something went wrong');
+    error.name = 'CustomError';
+    error.stack = `CustomError: Something went wrong
+    at someFunction (/var/task/handler.js:10:15)`;
+
+    const result = JSON.parse(formatted(error));
+    result.should.have.property('working_directory').which.is.a.String();
+    result.should.have.property('exceptions').with.length(1);
+    result.exceptions[0].should.have.property('type', 'CustomError');
+    result.exceptions[0].should.have.property(
+      'message',
+      'Something went wrong',
+    );
+    result.exceptions[0].stack.should.deepEqual([
+      {
+        path: '/var/task/handler.js',
+        line: 10,
+        label: 'someFunction',
+      },
+    ]);
+    result.paths.should.deepEqual(['/var/task/handler.js']);
+  });
+
+  it('should handle an error without stack trace', () => {
+    const error = new Error('No stack here');
+    error.name = 'NoStackError';
+    error.stack = null;
+
+    const result = JSON.parse(formatted(error));
+    result.exceptions[0].should.have.property('stack').with.length(0);
+    result.paths.should.eql([]);
+  });
+
+  it('should handle multiple stack frames', () => {
+    const error = new Error('Complex error');
+    error.name = 'ComplexError';
+    error.stack = `ComplexError: Complex error
+    at firstFunction (/var/task/one.js:1:100)
+    at secondFunction (/var/task/two.js:2:200)
+    at /var/task/three.js:3:300`;
+
+    const result = JSON.parse(formatted(error));
+    result.exceptions[0].stack.should.deepEqual([
+      { path: '/var/task/one.js', line: 1, label: 'firstFunction' },
+      { path: '/var/task/two.js', line: 2, label: 'secondFunction' },
+      { path: '/var/task/three.js', line: 3, label: 'anonymous' },
+    ]);
+    result.paths.should.eql([
+      '/var/task/one.js',
+      '/var/task/two.js',
+      '/var/task/three.js',
+    ]);
+  });
+
+  it('should encode invalid characters in name and message', () => {
+    const error = new Error('\x7Fmessage');
+    error.name = 'Name\x7F';
+
+    error.stack = `Name\x7F: \x7Fmessage
+    at anon (/var/task/bad.js:99:1)`;
+
+    const result = JSON.parse(formatted(error));
+    result.exceptions[0].type.should.equal('Name%7F');
+    result.exceptions[0].message.should.equal('%7Fmessage');
+  });
+
+  it('should return empty string on circular reference', () => {
+    class CircularError extends Error {
+      constructor() {
+        super('circular');
+        this.name = 'CircularError';
+        this.circular = this;
+      }
+
+      toString() {
+        return 'CircularError: circular';
+      }
+    }
+
+    const error = new CircularError();
+    error.stack = `CircularError: circular
+    at circularFunction (/var/task/circle.js:1:1)`;
+
+    // Manually inject the circular object into a field that gets stringified
+    const originalStack = error.stack;
+    error.stack = {
+      toString: () => {
+        return originalStack;
+      },
+    };
+    error.stack.circular = error.stack;
+
+    const result = formatted(error);
+    result.should.equal('');
+  });
+});