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diff --git a/packages/excalidraw/tests/library.test.tsx b/packages/excalidraw/tests/library.test.tsx
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+++ b/packages/excalidraw/tests/library.test.tsx
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+import React from "react";
+import { vi } from "vitest";
+import { fireEvent, getCloneByOrigId, render, waitFor } from "./test-utils";
+import { act, queryByTestId } from "@testing-library/react";
+
+import { Excalidraw } from "../index";
+import { API } from "./helpers/api";
+import { MIME_TYPES, ORIG_ID } from "../constants";
+import type { LibraryItem, LibraryItems } from "../types";
+import { UI } from "./helpers/ui";
+import { serializeLibraryAsJSON } from "../data/json";
+import { distributeLibraryItemsOnSquareGrid } from "../data/library";
+import type { ExcalidrawGenericElement } from "../element/types";
+import { getCommonBoundingBox } from "../element/bounds";
+import { parseLibraryJSON } from "../data/blob";
+
+const { h } = window;
+
+const libraryJSONPromise = API.readFile(
+  "./fixtures/fixture_library.excalidrawlib",
+  "utf8",
+);
+
+const mockLibraryFilePromise = new Promise<Blob>(async (resolve, reject) => {
+  try {
+    resolve(
+      new Blob([await libraryJSONPromise], { type: MIME_TYPES.excalidrawlib }),
+    );
+  } catch (error) {
+    reject(error);
+  }
+});
+
+vi.mock("../data/filesystem.ts", async (importOriginal) => {
+  const module = await importOriginal();
+  return {
+    __esmodule: true,
+    //@ts-ignore
+    ...module,
+    fileOpen: vi.fn(() => mockLibraryFilePromise),
+  };
+});
+
+describe("library", () => {
+  beforeEach(async () => {
+    await render(<Excalidraw />);
+    await act(() => {
+      return h.app.library.resetLibrary();
+    });
+  });
+
+  it("import library via drag&drop", async () => {
+    expect(await h.app.library.getLatestLibrary()).toEqual([]);
+    await API.drop(
+      await API.loadFile("./fixtures/fixture_library.excalidrawlib"),
+    );
+    await waitFor(async () => {
+      expect(await h.app.library.getLatestLibrary()).toEqual([
+        {
+          status: "unpublished",
+          elements: [expect.objectContaining({ id: "A" })],
+          id: "id0",
+          created: expect.any(Number),
+        },
+      ]);
+    });
+  });
+
+  // NOTE: mocked to test logic, not actual drag&drop via UI
+  it("drop library item onto canvas", async () => {
+    expect(h.elements).toEqual([]);
+    const libraryItems = parseLibraryJSON(await libraryJSONPromise);
+    await API.drop(
+      new Blob([serializeLibraryAsJSON(libraryItems)], {
+        type: MIME_TYPES.excalidrawlib,
+      }),
+    );
+    await waitFor(() => {
+      expect(h.elements).toEqual([expect.objectContaining({ [ORIG_ID]: "A" })]);
+    });
+  });
+
+  it("should regenerate ids but retain bindings on library insert", async () => {
+    const rectangle = API.createElement({
+      id: "rectangle1",
+      type: "rectangle",
+      boundElements: [
+        { type: "text", id: "text1" },
+        { type: "arrow", id: "arrow1" },
+      ],
+    });
+    const text = API.createElement({
+      id: "text1",
+      type: "text",
+      text: "ola",
+      containerId: "rectangle1",
+    });
+    const arrow = API.createElement({
+      id: "arrow1",
+      type: "arrow",
+      endBinding: {
+        elementId: "rectangle1",
+        focus: -1,
+        gap: 0,
+        fixedPoint: [0.5, 1],
+      },
+    });
+
+    await API.drop(
+      new Blob(
+        [
+          serializeLibraryAsJSON([
+            {
+              id: "item1",
+              status: "published",
+              elements: [rectangle, text, arrow],
+              created: 1,
+            },
+          ]),
+        ],
+        {
+          type: MIME_TYPES.excalidrawlib,
+        },
+      ),
+    );
+
+    await waitFor(() => {
+      expect(h.elements).toEqual(
+        expect.arrayContaining([
+          expect.objectContaining({
+            [ORIG_ID]: "rectangle1",
+            boundElements: expect.arrayContaining([
+              { type: "text", id: getCloneByOrigId("text1").id },
+              { type: "arrow", id: getCloneByOrigId("arrow1").id },
+            ]),
+          }),
+          expect.objectContaining({
+            [ORIG_ID]: "text1",
+            containerId: getCloneByOrigId("rectangle1").id,
+          }),
+          expect.objectContaining({
+            [ORIG_ID]: "arrow1",
+            endBinding: expect.objectContaining({
+              elementId: getCloneByOrigId("rectangle1").id,
+            }),
+          }),
+        ]),
+      );
+    });
+  });
+
+  it("should fix duplicate ids between items on insert", async () => {
+    // note, we're not testing for duplicate group ids and such because
+    // deduplication of that happens upstream in the library component
+    // which would be very hard to orchestrate in this test
+
+    const elem1 = API.createElement({
+      id: "elem1",
+      type: "rectangle",
+    });
+    const item1: LibraryItem = {
+      id: "item1",
+      status: "published",
+      elements: [elem1],
+      created: 1,
+    };
+
+    await API.drop(
+      new Blob([serializeLibraryAsJSON([item1, item1])], {
+        type: MIME_TYPES.excalidrawlib,
+      }),
+    );
+
+    await waitFor(() => {
+      expect(h.elements).toEqual([
+        expect.objectContaining({
+          [ORIG_ID]: "elem1",
+        }),
+        expect.objectContaining({
+          id: expect.not.stringMatching(/^elem1$/),
+          [ORIG_ID]: expect.not.stringMatching(/^\w+$/),
+        }),
+      ]);
+    });
+  });
+
+  it("inserting library item should revert to selection tool", async () => {
+    UI.clickTool("rectangle");
+    expect(h.elements).toEqual([]);
+    const libraryItems = parseLibraryJSON(await libraryJSONPromise);
+    await API.drop(
+      new Blob([serializeLibraryAsJSON(libraryItems)], {
+        type: MIME_TYPES.excalidrawlib,
+      }),
+    );
+    await waitFor(() => {
+      expect(h.elements).toEqual([expect.objectContaining({ [ORIG_ID]: "A" })]);
+    });
+    expect(h.state.activeTool.type).toBe("selection");
+  });
+});
+
+describe("library menu", () => {
+  it("should load library from file picker", async () => {
+    const { container } = await render(<Excalidraw />);
+
+    const latestLibrary = await h.app.library.getLatestLibrary();
+    expect(latestLibrary.length).toBe(0);
+
+    const libraryButton = container.querySelector(".sidebar-trigger");
+
+    fireEvent.click(libraryButton!);
+    fireEvent.click(
+      queryByTestId(
+        container.querySelector(".layer-ui__library")!,
+        "dropdown-menu-button",
+      )!,
+    );
+    fireEvent.click(queryByTestId(container, "lib-dropdown--load")!);
+
+    const libraryItems = parseLibraryJSON(await libraryJSONPromise);
+
+    await waitFor(async () => {
+      const latestLibrary = await h.app.library.getLatestLibrary();
+      expect(latestLibrary.length).toBeGreaterThan(0);
+      expect(latestLibrary.length).toBe(libraryItems.length);
+      const { versionNonce, ...strippedElement } = libraryItems[0]?.elements[0]; // stripped due to mutations
+      expect(latestLibrary[0].elements).toEqual([
+        expect.objectContaining(strippedElement),
+      ]);
+    });
+  });
+});
+
+describe("distributeLibraryItemsOnSquareGrid()", () => {
+  it("should distribute items on a grid", async () => {
+    const createLibraryItem = (
+      elements: ExcalidrawGenericElement[],
+    ): LibraryItem => {
+      return {
+        id: `id-${Date.now()}`,
+        elements,
+        status: "unpublished",
+        created: Date.now(),
+      };
+    };
+
+    const PADDING = 50;
+
+    const el1 = API.createElement({
+      id: "id1",
+      width: 100,
+      height: 100,
+      x: 0,
+      y: 0,
+    });
+
+    const el2 = API.createElement({
+      id: "id2",
+      width: 100,
+      height: 80,
+      x: -100,
+      y: -50,
+    });
+
+    const el3 = API.createElement({
+      id: "id3",
+      width: 40,
+      height: 50,
+      x: -100,
+      y: -50,
+    });
+
+    const el4 = API.createElement({
+      id: "id4",
+      width: 50,
+      height: 50,
+      x: 0,
+      y: 0,
+    });
+
+    const el5 = API.createElement({
+      id: "id5",
+      width: 70,
+      height: 100,
+      x: 40,
+      y: 0,
+    });
+
+    const libraryItems: LibraryItems = [
+      createLibraryItem([el1]),
+      createLibraryItem([el2]),
+      createLibraryItem([el3]),
+      createLibraryItem([el4, el5]),
+    ];
+
+    const distributed = distributeLibraryItemsOnSquareGrid(libraryItems);
+    // assert the returned library items are flattened to elements
+    expect(distributed.length).toEqual(
+      libraryItems.map((x) => x.elements).flat().length,
+    );
+    expect(distributed).toEqual(
+      expect.arrayContaining([
+        expect.objectContaining({
+          id: el1.id,
+          x: 0,
+          y: 0,
+        }),
+        expect.objectContaining({
+          id: el2.id,
+          x:
+            el1.width +
+            PADDING +
+            (getCommonBoundingBox([el4, el5]).width - el2.width) / 2,
+          y: Math.abs(el1.height - el2.height) / 2,
+        }),
+        expect.objectContaining({
+          id: el3.id,
+          x: Math.abs(el1.width - el3.width) / 2,
+          y:
+            Math.max(el1.height, el2.height) +
+            PADDING +
+            Math.abs(el3.height - Math.max(el4.height, el5.height)) / 2,
+        }),
+        expect.objectContaining({
+          id: el4.id,
+          x: Math.max(el1.width, el2.width) + PADDING,
+          y: Math.max(el1.height, el2.height) + PADDING,
+        }),
+        expect.objectContaining({
+          id: el5.id,
+          x: Math.max(el1.width, el2.width) + PADDING + Math.abs(el5.x - el4.x),
+          y:
+            Math.max(el1.height, el2.height) +
+            PADDING +
+            Math.abs(el5.y - el4.y),
+        }),
+      ]),
+    );
+  });
+});