diff --git a/qualibrate_config/core/utils.py b/qualibrate_config/core/utils.py
index cab5c17..36366d6 100644
--- a/qualibrate_config/core/utils.py
+++ b/qualibrate_config/core/utils.py
@@ -8,8 +8,23 @@ def recursive_update_dict(
     to_update: RawConfigType,
     updates: Mapping[str, Any],
 ) -> RawConfigType:
+    """
+    Recursively merge nested dictionaries, updating values and adding new keys.
+
+    Used to merge project-specific config overrides on top of base config.
+    New keys are added, existing nested dicts are merged recursively, and
+    non-dict values are replaced. Modifies ``to_update`` in-place.
+
+    Args:
+        to_update: Base dictionary to update (modified in-place).
+        updates: Dictionary with updates to apply recursively.
+
+    Returns:
+        The updated dictionary (same reference as ``to_update``).
+    """
     for k, v in updates.items():
         if k not in to_update:
+            to_update[k] = v
             continue
         if isinstance(v, Mapping):
             to_update[k] = recursive_update_dict(to_update.get(k, {}), v)
diff --git a/tests/unit/test_core/test_utils.py b/tests/unit/test_core/test_utils.py
new file mode 100644
index 0000000..a678776
--- /dev/null
+++ b/tests/unit/test_core/test_utils.py
@@ -0,0 +1,131 @@
+from qualibrate_config.core.utils import recursive_update_dict
+
+
+def test_recursive_update_dict_add_new_key():
+    """Test that new keys from updates are added to the base dict."""
+    base = {"section": {"existing": "value"}}
+    updates = {"section": {"new_key": "new_value"}}
+
+    result = recursive_update_dict(base, updates)
+
+    assert result["section"]["existing"] == "value"
+    assert result["section"]["new_key"] == "new_value"
+
+
+def test_recursive_update_dict_update_existing_key():
+    """Test that existing keys are properly updated."""
+    base = {"section": {"key": "old_value"}}
+    updates = {"section": {"key": "new_value"}}
+
+    result = recursive_update_dict(base, updates)
+
+    assert result["section"]["key"] == "new_value"
+
+
+def test_recursive_update_dict_add_new_top_level_section():
+    """Test that completely new sections are added."""
+    base = {"existing_section": {"key": "value"}}
+    updates = {"new_section": {"key": "value"}}
+
+    result = recursive_update_dict(base, updates)
+
+    assert "existing_section" in result
+    assert "new_section" in result
+    assert result["new_section"]["key"] == "value"
+
+
+def test_recursive_update_dict_nested_merge_with_new_keys():
+    """Test recursive merge preserves existing values while adding new ones."""
+    base = {"quam": {"version": 3, "serialization": {"include_defaults": True}}}
+    updates = {
+        "quam": {
+            "state_path": "/new/path",
+            "serialization": {"other_option": False},
+        }
+    }
+
+    result = recursive_update_dict(base, updates)
+
+    # Existing values preserved
+    assert result["quam"]["version"] == 3
+    assert result["quam"]["serialization"]["include_defaults"] is True
+
+    # New values added
+    assert result["quam"]["state_path"] == "/new/path"
+    assert result["quam"]["serialization"]["other_option"] is False
+
+
+def test_recursive_update_dict_project_config_use_case():
+    """
+    Test adding new keys to project config when base config doesn't have them.
+
+    This test verifies that when merging configurations:
+    - Base config: [quam] has version=3, no state_path
+    - Project config: [quam] adds state_path="/project/path"
+    - Expected: state_path should be merged in while preserving existing values
+    """
+    # Base config from ~/.qualibrate/config.toml
+    base = {
+        "quam": {
+            "raise_error_missing_reference": False,
+            "version": 3,
+            "serialization": {"include_defaults": True},
+        },
+        "qualibrate": {"version": 5, "project": "CS_1"},
+    }
+
+    # Project config from ~/.qualibrate/projects/CS_1/config.toml
+    updates = {
+        "quam": {"state_path": "/path/to/project/quam_state"},
+        "qualibrate": {"storage": {"location": "/project/storage"}},
+    }
+
+    result = recursive_update_dict(base, updates)
+
+    # Verify all base values preserved
+    assert result["quam"]["version"] == 3
+    assert result["quam"]["raise_error_missing_reference"] is False
+    assert result["quam"]["serialization"]["include_defaults"] is True
+    assert result["qualibrate"]["version"] == 5
+    assert result["qualibrate"]["project"] == "CS_1"
+
+    # Verify new project-specific values added
+    assert result["quam"]["state_path"] == "/path/to/project/quam_state"
+    assert result["qualibrate"]["storage"]["location"] == "/project/storage"
+
+
+def test_recursive_update_dict_empty_updates():
+    """Test that empty updates dict doesn't break anything."""
+    base = {"section": {"key": "value"}}
+    updates = {}
+
+    result = recursive_update_dict(base, updates)
+
+    assert result == base
+
+
+def test_recursive_update_dict_non_dict_value_override():
+    """Test that non-dict values properly override nested dicts."""
+    base = {"section": {"key": {"nested": "value"}}}
+    updates = {"section": {"key": "simple_value"}}
+
+    result = recursive_update_dict(base, updates)
+
+    assert result["section"]["key"] == "simple_value"
+
+
+def test_recursive_update_dict_multiple_new_keys_at_different_levels():
+    """Test adding new keys at multiple nesting levels."""
+    base = {"level1": {"level2": {"existing": "value"}}}
+    updates = {
+        "level1": {
+            "new_at_level2": "value2",
+            "level2": {"new_at_level3": "value3"},
+        }
+    }
+
+    result = recursive_update_dict(base, updates)
+
+    assert result["level1"]["level2"]["existing"] == "value"
+    assert result["level1"]["new_at_level2"] == "value2"
+    assert result["level1"]["level2"]["new_at_level3"] == "value3"