diff --git a/nixos/modules/virtualisation/lxc-container.nix b/nixos/modules/virtualisation/lxc-container.nix
index 61d7c4cb73fe..3471db974a15 100644
--- a/nixos/modules/virtualisation/lxc-container.nix
+++ b/nixos/modules/virtualisation/lxc-container.nix
@@ -1,26 +1,14 @@
 { lib, config, pkgs, ... }:
 
-let
-  cfg = config.virtualisation.lxc;
-in {
+{
   imports = [
     ./lxc-instance-common.nix
+
+    (lib.mkRemovedOptionModule [ "virtualisation" "lxc" "nestedContainer" ] "")
+    (lib.mkRemovedOptionModule [ "virtualisation" "lxc" "privilegedContainer" ] "")
   ];
 
-  options = {
-    virtualisation.lxc = {
-      nestedContainer = lib.mkEnableOption (lib.mdDoc ''
-        Whether this container is configured as a nested container. On LXD containers this is recommended
-        for all containers and is enabled with `security.nesting = true`.
-      '');
-
-      privilegedContainer = lib.mkEnableOption (lib.mdDoc ''
-        Whether this LXC container will be running as a privileged container or not. If set to `true` then
-        additional configuration will be applied to the `systemd` instance running within the container as
-        recommended by [distrobuilder](https://linuxcontainers.org/distrobuilder/introduction/).
-      '');
-    };
-  };
+  options = { };
 
   config = {
     boot.isContainer = true;
@@ -85,34 +73,10 @@ in {
       ${pkgs.coreutils}/bin/ln -fs "$1/init" /sbin/init
     '';
 
-    systemd.additionalUpstreamSystemUnits = lib.mkIf cfg.nestedContainer ["systemd-udev-trigger.service"];
+    # networkd depends on this, but systemd module disables this for containers
+    systemd.additionalUpstreamSystemUnits = ["systemd-udev-trigger.service"];
 
-    # Add the overrides from lxd distrobuilder
-    # https://github.com/lxc/distrobuilder/blob/05978d0d5a72718154f1525c7d043e090ba7c3e0/distrobuilder/main.go#L630
-    systemd.packages = [
-      (pkgs.writeTextFile {
-        name = "systemd-lxc-service-overrides";
-        destination = "/etc/systemd/system/service.d/zzz-lxc-service.conf";
-        text = ''
-          [Service]
-          ProcSubset=all
-          ProtectProc=default
-          ProtectControlGroups=no
-          ProtectKernelTunables=no
-          NoNewPrivileges=no
-          LoadCredential=
-        '' + lib.optionalString cfg.privilegedContainer ''
-          # Additional settings for privileged containers
-          ProtectHome=no
-          ProtectSystem=no
-          PrivateDevices=no
-          PrivateTmp=no
-          ProtectKernelLogs=no
-          ProtectKernelModules=no
-          ReadWritePaths=
-        '';
-      })
-    ];
+    systemd.packages = [ pkgs.distrobuilder.generator ];
 
     system.activationScripts.installInitScript = lib.mkForce ''
       ln -fs $systemConfig/init /sbin/init
diff --git a/nixos/tests/incus/container.nix b/nixos/tests/incus/container.nix
index 79b9e2fbabdc..49a22c08aad1 100644
--- a/nixos/tests/incus/container.nix
+++ b/nixos/tests/incus/container.nix
@@ -73,5 +73,33 @@ in
         meminfo = machine.succeed("incus exec container grep -- MemTotal /proc/meminfo").strip()
         meminfo_bytes = " ".join(meminfo.split(' ')[-2:])
         assert meminfo_bytes == "125000 kB", f"Wrong amount of memory reported from /proc/meminfo, want: '125000 kB', got: '{meminfo_bytes}'"
+
+    with subtest("lxc-container generator configures plain container"):
+        machine.execute("incus delete --force container")
+        machine.succeed("incus launch nixos container")
+        with machine.nested("Waiting for instance to start and be usable"):
+          retry(instance_is_up)
+
+        machine.succeed("incus exec container test -- -e /run/systemd/system/service.d/zzz-lxc-service.conf")
+
+    with subtest("lxc-container generator configures nested container"):
+        machine.execute("incus delete --force container")
+        machine.succeed("incus launch nixos container --config security.nesting=true")
+        with machine.nested("Waiting for instance to start and be usable"):
+          retry(instance_is_up)
+
+        machine.fail("incus exec container test -- -e /run/systemd/system/service.d/zzz-lxc-service.conf")
+        target = machine.succeed("incus exec container readlink -- -f /run/systemd/system/systemd-binfmt.service").strip()
+        assert target == "/dev/null", "lxc generator did not correctly mask /run/systemd/system/systemd-binfmt.service"
+
+    with subtest("lxc-container generator configures privileged container"):
+        machine.execute("incus delete --force container")
+        machine.succeed("incus launch nixos container --config security.privileged=true")
+        with machine.nested("Waiting for instance to start and be usable"):
+          retry(instance_is_up)
+        # give generator an extra second to run
+        machine.sleep(1)
+
+        machine.succeed("incus exec container test -- -e /run/systemd/system/service.d/zzz-lxc-service.conf")
   '';
 })
diff --git a/pkgs/tools/virtualization/distrobuilder/default.nix b/pkgs/tools/virtualization/distrobuilder/default.nix
index f87d685979de..e5444d4a5b1e 100644
--- a/pkgs/tools/virtualization/distrobuilder/default.nix
+++ b/pkgs/tools/virtualization/distrobuilder/default.nix
@@ -9,6 +9,7 @@
 , squashfsTools
 , debootstrap
 , callPackage
+, nixosTests
 }:
 
 let
@@ -36,7 +37,6 @@ buildGoModule rec {
 
   buildInputs = bins;
 
-  passthru.generator = callPackage ./generator.nix { inherit src version; };
 
   # tests require a local keyserver (mkg20001/nixpkgs branch distrobuilder-with-tests) but gpg is currently broken in tests
   doCheck = false;
@@ -50,6 +50,12 @@ buildGoModule rec {
     wrapProgram $out/bin/distrobuilder --prefix PATH ":" ${lib.makeBinPath bins}
   '';
 
+  passthru = {
+    tests.incus = nixosTests.incus.container;
+
+    generator = callPackage ./generator.nix { inherit src version; };
+  };
+
   meta = with lib; {
     description = "System container image builder for LXC and LXD";
     homepage = "https://github.com/lxc/distrobuilder";