diff --git a/CHANGELOG.md b/CHANGELOG.md
index 573d01163..54d3e4bbf 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -9,6 +9,7 @@ and this project adheres to [Semantic Versioning](http://semver.org/).
 ### Added
 
 - Prometheus metrics for the 3scale batching policy [PR #902](https://github.com/3scale/apicast/pull/902)
+- Support for path in the upstream URL [PR #905](https://github.com/3scale/apicast/pull/905)
 
 ## [3.3.0-cr1] - 2018-09-14
 
diff --git a/gateway/src/apicast/http_proxy.lua b/gateway/src/apicast/http_proxy.lua
index 5efa09f31..dfaf140bc 100644
--- a/gateway/src/apicast/http_proxy.lua
+++ b/gateway/src/apicast/http_proxy.lua
@@ -76,7 +76,7 @@ local function absolute_url(uri)
             uri.scheme,
             host,
             port,
-            uri.path or ngx.var.uri or ''
+            uri.path or ''
     )
 end
 
diff --git a/gateway/src/apicast/upstream.lua b/gateway/src/apicast/upstream.lua
index 34632d7d9..39105725a 100644
--- a/gateway/src/apicast/upstream.lua
+++ b/gateway/src/apicast/upstream.lua
@@ -117,6 +117,21 @@ function _M:port()
     return self.uri.port or resty_url.default_port(self.uri.scheme)
 end
 
+local root_uri = {
+    ['/'] = true,
+    [''] = true,
+}
+
+local function prefix_path(prefix)
+    local uri = ngx.var.uri or ''
+
+    if root_uri[uri] then return prefix end
+
+    uri = resty_url.join(prefix, uri)
+
+    return uri
+end
+
 --- Rewrite request Host header to what is provided in the argument or in the URL.
 function _M:rewrite_request()
     local uri = self.uri
@@ -126,7 +141,7 @@ function _M:rewrite_request()
     ngx.req.set_header('Host', self.host or uri.host)
 
     if uri.path then
-        ngx.req.set_uri(uri.path)
+        ngx.req.set_uri(prefix_path(uri.path))
     end
 
     if uri.query then
diff --git a/gateway/src/resty/http_ng/backend/ngx.lua b/gateway/src/resty/http_ng/backend/ngx.lua
index 65916e9df..1cd5902ab 100644
--- a/gateway/src/resty/http_ng/backend/ngx.lua
+++ b/gateway/src/resty/http_ng/backend/ngx.lua
@@ -60,6 +60,7 @@ function backend.resolver()
     ngx.req.set_header(name, headers[name])
   end
 
+  ngx.req.set_uri('/') -- reset the original PROXY_LOCATION path
   ngx.var.connection_header = headers.connection
   ngx.var.host_header = headers.host
   ngx.var.options = headers['3scale-options']
diff --git a/spec/upstream_spec.lua b/spec/upstream_spec.lua
index a55b3c940..d07374598 100644
--- a/spec/upstream_spec.lua
+++ b/spec/upstream_spec.lua
@@ -95,6 +95,38 @@ describe('Upstream', function()
             assert.spy(ngx.req.set_uri).was_called_with('/test-path')
         end)
 
+        for url, path in pairs({
+            ['http://example.com'] = '/',
+            ['http://example.com/path'] = '/path',
+            ['http://example.com/path/'] = '/path/',
+            ['http://example.com/path/foo'] = '/path/foo',
+            ['http://example.com/path/foo/'] = '/path/foo/',
+            ['http://example.com/path?test=value/'] = '/path',
+        }) do
+            it(('/ uses path %s for upstream %s'):format(path, url), function()
+                ngx.var.uri = '/'
+                local upstream = Upstream.new(url)
+                upstream:rewrite_request()
+                assert.same(path, ngx.var.uri)
+            end)
+        end
+
+        for url, path in pairs({
+            ['http://example.com'] = '/test',
+            ['http://example.com/path'] = '/path/test',
+            ['http://example.com/path/'] = '/path/test',
+            ['http://example.com/path/foo'] = '/path/foo/test',
+            ['http://example.com/path/foo/'] = '/path/foo/test',
+            ['http://example.com/path?test=value/'] = '/path/test',
+        }) do
+            it(('/test uses path %s for upstream %s'):format(path, url), function()
+                ngx.var.uri = '/test'
+                local upstream = Upstream.new(url)
+                upstream:rewrite_request()
+                assert.same(path, ngx.var.uri)
+            end)
+        end
+
         it('sets request query params to the upstream query params', function()
             assert(Upstream.new('http://example.com/?query=param')):rewrite_request()
 
diff --git a/t/apicast-blackbox.t b/t/apicast-blackbox.t
index 36ea51cf6..b8d66ae0d 100644
--- a/t/apicast-blackbox.t
+++ b/t/apicast-blackbox.t
@@ -136,3 +136,37 @@ location /transactions/authrep.xml {
 --- no_error_log
 [error]
 --- user_files fixture=tls.pl eval
+
+
+
+=== TEST 4: api backend gets the request on its subpath
+The request url is concatenated with the api backend url.
+--- configuration
+{
+  "services": [
+    {
+      "id": 42,
+      "backend_version":  1,
+      "proxy": {
+        "api_backend": "http://test:$TEST_NGINX_SERVER_PORT/foo",
+        "proxy_rules": [
+          { "pattern": "/", "http_method": "GET", "metric_system_name": "hits", "delta": 2 }
+        ]
+      }
+    }
+  ]
+}
+--- backend
+location /transactions/authrep.xml {
+    echo 'ok';
+}
+--- upstream
+location / {
+    echo 'path: $uri';
+}
+--- request
+GET /bar?user_key=value
+--- response_body
+path: /foo/bar
+--- no_error_log
+[error]
diff --git a/t/apicast-caching.t b/t/apicast-caching.t
index 01341e662..67e8afe84 100644
--- a/t/apicast-caching.t
+++ b/t/apicast-caching.t
@@ -76,7 +76,7 @@ Two services can exist together and are split by their hostname.
           backend_authentication_type = 'service_token',
           backend_authentication_value = 'service-one',
           proxy = {
-            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/one/",
+            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/foo/",
             hosts = { 'one' },
             proxy_rules = {
               { pattern = '/', http_method = 'GET', metric_system_name = 'hits', delta = 1 }
@@ -89,7 +89,7 @@ Two services can exist together and are split by their hostname.
           backend_authentication_type = 'service_token',
           backend_authentication_value = 'service-two',
           proxy = {
-            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/two/",
+            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/bar/",
             hosts = { 'two' },
             proxy_rules = {
               { pattern = '/', http_method = 'GET', metric_system_name = 'hits', delta = 2 }
@@ -135,8 +135,8 @@ Two services can exist together and are split by their hostname.
 --- request
 GET /t
 --- response_body
-yay, api backend: /one/
-yay, api backend: /two/
+yay, api backend: /foo/one
+yay, api backend: /bar/two
 --- error_code: 200
 --- no_error_log
 [error]
diff --git a/t/apicast-path-routing.t b/t/apicast-path-routing.t
index 4060a9079..1d9d99afc 100644
--- a/t/apicast-path-routing.t
+++ b/t/apicast-path-routing.t
@@ -22,7 +22,7 @@ env APICAST_PATH_ROUTING;
           id = 42,
           backend_version = 1,
           proxy = {
-            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/one/",
+            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/foo/",
             hosts = { 'same' },
             backend_authentication_type = 'service_token',
             backend_authentication_value = 'service-one',
@@ -35,7 +35,7 @@ env APICAST_PATH_ROUTING;
           id = 21,
           backend_version = 2,
           proxy = {
-            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/two/",
+            api_backend = "http://127.0.0.1:$TEST_NGINX_SERVER_PORT/api-backend/bar/",
             hosts = { 'same' },
             backend_authentication_type = 'service_token',
             backend_authentication_value = 'service-two',
@@ -71,8 +71,8 @@ env APICAST_PATH_ROUTING;
 --- request
 GET /t
 --- response_body
-yay, api backend: /one/
-yay, api backend: /two/
+yay, api backend: /foo/one
+yay, api backend: /bar/two
 --- error_code: 200
 --- grep_error_log eval: qr/apicast cache (?:hit|miss|write) key: [^,\s]+/
 --- grep_error_log_out
diff --git a/t/apicast-policy-upstream.t b/t/apicast-policy-upstream.t
index c7b2d0120..427feffaf 100644
--- a/t/apicast-policy-upstream.t
+++ b/t/apicast-policy-upstream.t
@@ -215,16 +215,12 @@ yay, api backend
 }
 --- upstream
   location /path_in_the_rule {
-     content_by_lua_block {
-       require('luassert').are.equal('GET /path_in_the_rule?user_key=uk&a_param=a_value HTTP/1.1',
-                                     ngx.var.request)
-       ngx.say('yay, api backend');
-     }
+     echo $request;
   }
 --- request
 GET /some_path?user_key=uk&a_param=a_value
 --- response_body
-yay, api backend
+GET /path_in_the_rule/some_path?user_key=uk&a_param=a_value HTTP/1.1
 --- error_code: 200
 --- no_error_log
 [error]
diff --git a/t/http-proxy.t b/t/http-proxy.t
index 686802a93..b283b66e3 100644
--- a/t/http-proxy.t
+++ b/t/http-proxy.t
@@ -381,7 +381,7 @@ apicast cache write key: 42:value:usage%5Bhits%5D=2, ttl: nil, context: ngx.time
     {
       "backend_version":  1,
       "proxy": {
-        "api_backend": "http://test:$TEST_NGINX_SERVER_PORT/",
+        "api_backend": "http://test:$TEST_NGINX_SERVER_PORT",
         "proxy_rules": [
           { "pattern": "/test", "http_method": "GET", "metric_system_name": "hits", "delta": 2 }
         ]
@@ -420,7 +420,7 @@ proxy request: GET http://127.0.0.1:$TEST_NGINX_SERVER_PORT/test?user_key=value
     {
       "backend_version":  1,
       "proxy": {
-        "api_backend": "https://test:$TEST_NGINX_RANDOM_PORT/",
+        "api_backend": "https://test:$TEST_NGINX_RANDOM_PORT",
         "proxy_rules": [
           { "pattern": "/test", "http_method": "GET", "metric_system_name": "hits", "delta": 2 }
         ]
@@ -685,3 +685,78 @@ proxy request: CONNECT 127.0.0.1:$TEST_NGINX_RANDOM_PORT HTTP/1.1
 --- no_error_log
 [error]
 --- user_files fixture=tls.pl eval
+
+
+
+=== TEST 14: upstream API connection uses proxy and correctly routes to a path.
+--- env eval
+("http_proxy" => $ENV{TEST_NGINX_HTTP_PROXY})
+--- configuration
+{
+  "services": [
+    {
+      "backend_version":  1,
+      "proxy": {
+        "api_backend": "http://test:$TEST_NGINX_SERVER_PORT/foo",
+        "proxy_rules": [
+          { "pattern": "/test", "http_method": "GET", "metric_system_name": "hits", "delta": 2 }
+        ]
+      }
+    }
+  ]
+}
+--- backend
+  location /transactions/authrep.xml {
+    content_by_lua_block {
+      ngx.exit(ngx.OK)
+    }
+  }
+--- upstream
+  location / {
+     echo $request;
+  }
+--- request
+GET /test?user_key=value
+--- response_body
+GET /foo/test?user_key=value HTTP/1.1
+--- error_code: 200
+--- error_log env
+proxy request: GET http://127.0.0.1:$TEST_NGINX_SERVER_PORT/foo/test?user_key=value HTTP/1.1
+--- no_error_log
+[error]
+
+
+
+=== TEST 15: Upstream Policy connection uses proxy and correctly routes to a path.
+--- env eval
+("http_proxy" => $ENV{TEST_NGINX_HTTP_PROXY})
+--- configuration
+{
+  "services": [
+    {
+      "proxy": {
+        "policy_chain": [
+          { "name": "apicast.policy.upstream",
+            "configuration":
+              {
+                "rules": [ { "regex": "/test", "url": "http://test/foo" } ]
+              }
+          }
+        ]
+      }
+    }
+  ]
+}
+--- upstream
+  location / {
+    echo $request;
+  }
+--- request
+GET /test?user_key=value
+--- response_body
+GET /foo/test?user_key=value HTTP/1.1
+--- error_code: 200
+--- error_log env
+proxy request: GET http://127.0.0.1:$TEST_NGINX_SERVER_PORT/foo/test?user_key=value HTTP/1.1
+--- no_error_log
+[error]