diff --git a/CONTRIBUTING.md b/CONTRIBUTING.md
new file mode 100644
index 00000000..f8c73cdf
--- /dev/null
+++ b/CONTRIBUTING.md
@@ -0,0 +1,20 @@
+# Development Install
+
+``` shell
+git clone https://github.com/jupyterlab/jupyterlab_server.git
+cd jupyterlab_server
+pip install -e .
+```
+
+# Testing
+
+It is probably best to create a virtual environment to create a local test setup. There are multiple tools for creating a Python virtual environment out there from which you can choose the one you like best.
+
+To create a local test setup run the following commands (inside your virtual environment, if you chose to create one):
+
+``` shell
+git clone https://github.com/jupyterlab/jupyterlab_server.git
+cd jupyterlab_server
+pip install -e .[test]  # install test dependencies
+pytest
+```
diff --git a/README.md b/README.md
index 5c6e1ea6..5bf40a6e 100644
--- a/README.md
+++ b/README.md
@@ -10,16 +10,13 @@ https://github.com/jupyterlab/jupyterlab_server
 `pip install jupyterlab_server`
 
 ## Usage
+
 The application author creates a JupyterLab build on their machine
 using the core JupyterLab application.  They can then serve their
 files by subclassing the `LabServerApp` with the appropriate
 configuration and creating a Python entry point that launches the app.
 
 
-## Development Install
+## Contribution
 
-```
-git clone https://github.com/jupyterlab/jupyterlab_server.git
-cd jupyterlab_server
-pip install -e .
-```
+Please see `CONTRIBUTING.md` for details.