diff --git a/internal/policy/applier.go b/internal/policy/applier.go
new file mode 100644
index 0000000..2722746
--- /dev/null
+++ b/internal/policy/applier.go
@@ -0,0 +1,66 @@
+/*
+Copyright 2024 The Flux authors
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package policy
+
+import (
+	"context"
+	"errors"
+	"fmt"
+
+	securejoin "github.com/cyphar/filepath-securejoin"
+	"github.com/fluxcd/pkg/runtime/logger"
+	"sigs.k8s.io/controller-runtime/pkg/log"
+
+	imagev1_reflect "github.com/fluxcd/image-reflector-controller/api/v1beta2"
+
+	imagev1 "github.com/fluxcd/image-automation-controller/api/v1beta2"
+	"github.com/fluxcd/image-automation-controller/pkg/update"
+)
+
+var (
+	// ErrNoUpdateStrategy is an update error when the update strategy is not
+	// specified.
+	ErrNoUpdateStrategy = errors.New("no update strategy")
+	// ErrUnsupportedUpdateStrategy is an update error when the provided update
+	// strategy is not supported.
+	ErrUnsupportedUpdateStrategy = errors.New("unsupported update strategy")
+)
+
+// ApplyPolicies applies the given set of policies on the source present in the
+// workDir based on the provided ImageUpdateAutomation configuration.
+func ApplyPolicies(ctx context.Context, workDir string, obj *imagev1.ImageUpdateAutomation, policies []imagev1_reflect.ImagePolicy) (update.ResultV2, error) {
+	var result update.ResultV2
+	if obj.Spec.Update == nil {
+		return result, ErrNoUpdateStrategy
+	}
+	if obj.Spec.Update.Strategy != imagev1.UpdateStrategySetters {
+		return result, fmt.Errorf("%w: %s", ErrUnsupportedUpdateStrategy, obj.Spec.Update.Strategy)
+	}
+
+	// Resolve the path to the manifests to apply policies on.
+	manifestPath := workDir
+	if obj.Spec.Update.Path != "" {
+		p, err := securejoin.SecureJoin(workDir, obj.Spec.Update.Path)
+		if err != nil {
+			return result, fmt.Errorf("failed to secure join manifest path: %w", err)
+		}
+		manifestPath = p
+	}
+
+	tracelog := log.FromContext(ctx).V(logger.TraceLevel)
+	return update.UpdateV2WithSetters(tracelog, manifestPath, manifestPath, policies)
+}
diff --git a/internal/policy/applier_test.go b/internal/policy/applier_test.go
new file mode 100644
index 0000000..e183c48
--- /dev/null
+++ b/internal/policy/applier_test.go
@@ -0,0 +1,173 @@
+/*
+Copyright 2024 The Flux authors
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package policy
+
+import (
+	"context"
+	"path/filepath"
+	"testing"
+
+	. "github.com/onsi/gomega"
+	"github.com/otiai10/copy"
+	"k8s.io/apimachinery/pkg/runtime"
+	"k8s.io/apimachinery/pkg/types"
+
+	imagev1_reflect "github.com/fluxcd/image-reflector-controller/api/v1beta2"
+
+	imagev1 "github.com/fluxcd/image-automation-controller/api/v1beta2"
+	"github.com/fluxcd/image-automation-controller/internal/testutil"
+	"github.com/fluxcd/image-automation-controller/pkg/test"
+	"github.com/fluxcd/image-automation-controller/pkg/update"
+)
+
+func testdataPath(path string) string {
+	return filepath.Join("testdata", path)
+}
+
+func Test_applyPolicies(t *testing.T) {
+	tests := []struct {
+		name               string
+		updateStrategy     *imagev1.UpdateStrategy
+		policyLatestImages map[string]string
+		targetPolicyName   string
+		replaceMarkerFunc  func(g *WithT, path string, policyKey types.NamespacedName)
+		inputPath          string
+		expectedPath       string
+		wantErr            bool
+		wantResult         update.Result
+	}{
+		{
+			name: "valid update strategy and one policy",
+			updateStrategy: &imagev1.UpdateStrategy{
+				Strategy: imagev1.UpdateStrategySetters,
+			},
+			policyLatestImages: map[string]string{
+				"policy1": "helloworld:1.0.1",
+			},
+			targetPolicyName: "policy1",
+			inputPath:        testdataPath("appconfig"),
+			expectedPath:     testdataPath("appconfig-setters-expected"),
+			wantErr:          false,
+		},
+		{
+			name:           "no update strategy",
+			updateStrategy: nil,
+			wantErr:        true,
+		},
+		{
+			name: "unknown update strategy",
+			updateStrategy: &imagev1.UpdateStrategy{
+				Strategy: "foo",
+			},
+			wantErr: true,
+		},
+		{
+			name: "valid update strategy and multiple policies",
+			updateStrategy: &imagev1.UpdateStrategy{
+				Strategy: imagev1.UpdateStrategySetters,
+			},
+			policyLatestImages: map[string]string{
+				"policy1": "foo:1.1.1",
+				"policy2": "helloworld:1.0.1",
+				"policy3": "bar:2.2.2",
+			},
+			targetPolicyName: "policy2",
+			inputPath:        testdataPath("appconfig"),
+			expectedPath:     testdataPath("appconfig-setters-expected"),
+			wantErr:          false,
+		},
+		{
+			name: "valid update strategy with update path",
+			updateStrategy: &imagev1.UpdateStrategy{
+				Strategy: imagev1.UpdateStrategySetters,
+				Path:     "./yes",
+			},
+			policyLatestImages: map[string]string{
+				"policy1": "helloworld:1.0.1",
+			},
+			targetPolicyName: "policy1",
+			replaceMarkerFunc: func(g *WithT, path string, policyKey types.NamespacedName) {
+				g.Expect(testutil.ReplaceMarker(filepath.Join(path, "yes", "deploy.yaml"), policyKey)).ToNot(HaveOccurred())
+				g.Expect(testutil.ReplaceMarker(filepath.Join(path, "no", "deploy.yaml"), policyKey)).ToNot(HaveOccurred())
+			},
+			inputPath:    testdataPath("pathconfig"),
+			expectedPath: testdataPath("pathconfig-expected"),
+			wantErr:      false,
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			g := NewWithT(t)
+
+			testNS := "test-ns"
+			workDir := t.TempDir()
+
+			// Create all the policy objects.
+			policyList := []imagev1_reflect.ImagePolicy{}
+			for name, image := range tt.policyLatestImages {
+				policy := &imagev1_reflect.ImagePolicy{}
+				policy.Name = name
+				policy.Namespace = testNS
+				policy.Status = imagev1_reflect.ImagePolicyStatus{
+					LatestImage: image,
+				}
+				policyList = append(policyList, *policy)
+			}
+			targetPolicyKey := types.NamespacedName{
+				Name: tt.targetPolicyName, Namespace: testNS,
+			}
+
+			if tt.inputPath != "" {
+				g.Expect(copy.Copy(tt.inputPath, workDir)).ToNot(HaveOccurred())
+				// Update the test files with the target policy.
+				if tt.replaceMarkerFunc != nil {
+					tt.replaceMarkerFunc(g, workDir, targetPolicyKey)
+				} else {
+					g.Expect(testutil.ReplaceMarker(filepath.Join(workDir, "deploy.yaml"), targetPolicyKey)).ToNot(HaveOccurred())
+				}
+			}
+
+			updateAuto := &imagev1.ImageUpdateAutomation{}
+			updateAuto.Name = "test-update"
+			updateAuto.Namespace = testNS
+			updateAuto.Spec = imagev1.ImageUpdateAutomationSpec{
+				Update: tt.updateStrategy,
+			}
+
+			scheme := runtime.NewScheme()
+			imagev1_reflect.AddToScheme(scheme)
+			imagev1.AddToScheme(scheme)
+
+			_, err := ApplyPolicies(context.TODO(), workDir, updateAuto, policyList)
+			g.Expect(err != nil).To(Equal(tt.wantErr))
+
+			// Check the results if there wasn't any error.
+			if !tt.wantErr {
+				expected := t.TempDir()
+				copy.Copy(tt.expectedPath, expected)
+				// Update the markers in the expected test data.
+				if tt.replaceMarkerFunc != nil {
+					tt.replaceMarkerFunc(g, expected, targetPolicyKey)
+				} else {
+					g.Expect(testutil.ReplaceMarker(filepath.Join(expected, "deploy.yaml"), targetPolicyKey)).ToNot(HaveOccurred())
+				}
+				test.ExpectMatchingDirectories(g, workDir, expected)
+			}
+		})
+	}
+}
diff --git a/internal/policy/testdata/appconfig-setters-expected/deploy.yaml b/internal/policy/testdata/appconfig-setters-expected/deploy.yaml
new file mode 100644
index 0000000..924875c
--- /dev/null
+++ b/internal/policy/testdata/appconfig-setters-expected/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: test
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.1 # SETTER_SITE
diff --git a/internal/policy/testdata/appconfig/deploy.yaml b/internal/policy/testdata/appconfig/deploy.yaml
new file mode 100644
index 0000000..1ca5a03
--- /dev/null
+++ b/internal/policy/testdata/appconfig/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: test
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.0 # SETTER_SITE
diff --git a/internal/policy/testdata/pathconfig-expected/no/deploy.yaml b/internal/policy/testdata/pathconfig-expected/no/deploy.yaml
new file mode 100644
index 0000000..a64a5f5
--- /dev/null
+++ b/internal/policy/testdata/pathconfig-expected/no/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: update-no
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.0 # SETTER_SITE
diff --git a/internal/policy/testdata/pathconfig-expected/yes/deploy.yaml b/internal/policy/testdata/pathconfig-expected/yes/deploy.yaml
new file mode 100644
index 0000000..52b0f69
--- /dev/null
+++ b/internal/policy/testdata/pathconfig-expected/yes/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: update-yes
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.1 # SETTER_SITE
diff --git a/internal/policy/testdata/pathconfig/no/deploy.yaml b/internal/policy/testdata/pathconfig/no/deploy.yaml
new file mode 100644
index 0000000..a64a5f5
--- /dev/null
+++ b/internal/policy/testdata/pathconfig/no/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: update-no
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.0 # SETTER_SITE
diff --git a/internal/policy/testdata/pathconfig/yes/deploy.yaml b/internal/policy/testdata/pathconfig/yes/deploy.yaml
new file mode 100644
index 0000000..bdf3b26
--- /dev/null
+++ b/internal/policy/testdata/pathconfig/yes/deploy.yaml
@@ -0,0 +1,10 @@
+apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: update-yes
+spec:
+  template:
+    spec:
+      containers:
+      - name: hello
+        image: helloworld:1.0.0 # SETTER_SITE