diff --git a/fuel_ccp_tests/settings.py b/fuel_ccp_tests/settings.py
index 8213e3b..c745c38 100644
--- a/fuel_ccp_tests/settings.py
+++ b/fuel_ccp_tests/settings.py
@@ -58,7 +58,6 @@ KUBE_VERSION = os.environ.get("KUBE_VERSION", "v1.3.5")
 
 KUBE_NETWORK_PLUGIN = os.environ.get("KUBE_NETWORK_PLUGIN", "calico")
 KUBE_PROXY_MODE = os.environ.get("KUBE_PROXY_MODE", "iptables")
-IPIP_USAGE = get_var_as_bool('IPIP_USAGE', True)
 DOCKER_VERSION = float(os.environ.get("DOCKER_VERSION", "1.12"))
 
 HYPERKUBE_IMAGE_REPO = os.environ.get('HYPERKUBE_IMAGE_REPO',
@@ -91,7 +90,6 @@ DEFAULT_CUSTOM_YAML = {
     "etcd_deployment_type": ETCD_DEPLOYMENT_TYPE,
     "hyperkube_image_tag": HYPERKUBE_IMAGE_TAG,
     "hyperkube_image_repo": HYPERKUBE_IMAGE_REPO,
-    "ipip": IPIP_USAGE,
     "kube_version": KUBE_VERSION,
     "use_hyperkube_cni": str("true"),
     "searchdomains": SEARCH_DOMAINS,
@@ -106,10 +104,11 @@ CALICO = {
     "calico_cni_ipam_download_url": os.environ.get(
         'CALICO_CNI_IPAM_DOWNLOAD_URL'),
     "calico_cni_ipam_checksum": os.environ.get('CALICO_CNI_IPAM_CHECKSUM'),
+    "ipip": get_var_as_bool('IPIP_USAGE', None),
 }
 
 for key, val in CALICO.items():
-    if val:
+    if val is not None:
         DEFAULT_CUSTOM_YAML[key] = val
 
 DEPLOY_CONFIG = '/tmp/ccp-globals.yaml'
diff --git a/fuel_ccp_tests/settings_oslo.py b/fuel_ccp_tests/settings_oslo.py
index 0552d38..55ecf8f 100644
--- a/fuel_ccp_tests/settings_oslo.py
+++ b/fuel_ccp_tests/settings_oslo.py
@@ -68,7 +68,7 @@ underlay_opts = [
 # KUBE_ADMIN_PASS = os.environ.get('KUBE_ADMIN_PASS', 'changeme')
 # KUBE_HOST = os.environ.get('KUBE_HOST', None)
 # KUBE_VERSION = os.environ.get("KUBE_VERSION", "v1.3.0")
-# IPIP_USAGE = get_var_as_bool('IPIP_USAGE', True)
+# IPIP_USAGE = get_var_as_bool('IPIP_USAGE', None)
 # DEPLOY_SCRIPT = os.environ.get("DEPLOY_SCRIPT", None)
 
 # Deploy options for a new K8S cluster
@@ -76,7 +76,7 @@ k8s_deploy_opts = [
     ct.Cfg('kube_version', ct.String(),
            help="", default="v1.3.5"),
     ct.Cfg('ipip_usage', ct.Boolean(),
-           help="", default=True),
+           help="", default=False),
     ct.Cfg('deploy_script', ct.String(),
            help="", default=None),
     ct.Cfg('kube_settings', ct.JSONDict(),
diff --git a/fuel_ccp_tests/tests/system/test_ccp_install_k8s.py b/fuel_ccp_tests/tests/system/test_ccp_install_k8s.py
index 3089661..6c6cd48 100644
--- a/fuel_ccp_tests/tests/system/test_ccp_install_k8s.py
+++ b/fuel_ccp_tests/tests/system/test_ccp_install_k8s.py
@@ -11,6 +11,8 @@
 #    WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied. See the
 #    License for the specific language governing permissions and limitations
 #    under the License.
+import copy
+
 import pytest
 
 import base_test
@@ -139,8 +141,6 @@ class TestFuelCCPInstaller(base_test.SystemBaseTest,
         self.check_number_kube_nodes(underlay, k8sclient)
         self.check_list_required_images(underlay,
                                         required_images=required_images)
-        if kube_settings['ipip']:
-            self.calico_ipip_exists(underlay)
         self.check_etcd_health(underlay)
         nginx = self.get_nginx_spec()
         pod = k8s_actions.check_pod_create(body=nginx)
@@ -182,8 +182,6 @@ class TestFuelCCPInstaller(base_test.SystemBaseTest,
         self.check_number_kube_nodes(underlay, k8sclient)
         self.check_list_required_images(underlay,
                                         required_images=required_images)
-        if kube_settings['ipip']:
-            self.calico_ipip_exists(underlay)
         self.check_etcd_health(underlay)
         nginx = self.get_nginx_spec()
         pod = k8s_actions.check_pod_create(body=nginx)
@@ -225,6 +223,48 @@ class TestFuelCCPInstaller(base_test.SystemBaseTest,
         self.check_nginx_pod_is_reached(underlay, pod.status.pod_ip)
         k8s_actions.check_pod_delete(pod)
 
+    @pytest.mark.test_k8s_installed_with_ipip
+    @pytest.mark.revert_snapshot(ext.SNAPSHOT.underlay)
+    @pytest.mark.fail_snapshot
+    def test_k8s_installed_with_ipip(self, underlay, k8s_actions, show_step):
+        """Test for deploying an k8s environment with IPIP tunnels for Calico
+           and check it
+
+        Scenario:
+            1. Enable 'ipip' in the settings
+            2. Install k8s.
+            3. Check Calico IPIP tunnels exist
+            4. Basic check of running containers on nodes.
+            5. Create nginx pod.
+            6. Check created pod is reached
+            7. Delete pod.
+
+        Duration: 1200
+        """
+        show_step(1)
+        custom_yaml = copy.deepcopy(self.kube_settings)
+        custom_yaml['ipip'] = True
+
+        show_step(2)
+        k8s_actions.install_k8s(custom_yaml=custom_yaml)
+
+        show_step(3)
+        self.calico_ipip_exists(underlay)
+
+        show_step(4)
+        self.check_list_required_images(
+            underlay, required_images=self.base_images)
+
+        show_step(5)
+        nginx = self.get_nginx_spec()
+        pod = k8s_actions.check_pod_create(body=nginx)
+
+        show_step(6)
+        self.check_nginx_pod_is_reached(underlay, pod.status.pod_ip)
+
+        show_step(7)
+        k8s_actions.check_pod_delete(pod)
+
 
 @pytest.mark.fuel_ccp_installer_idempotency
 @pytest.mark.system