diff --git a/core/blockchain_db_observer.go b/core/blockchain_db_observer.go
index 23bb2fb7..9c187f1c 100644
--- a/core/blockchain_db_observer.go
+++ b/core/blockchain_db_observer.go
@@ -10,18 +10,24 @@ type BlockchainDBObserver struct {
 }
 
 func (observer BlockchainDBObserver) NotifyBlockAdded(block Block) {
-	observer.Db.MustExec("Insert INTO blocks "+
-		"(block_number, block_gaslimit, block_gasused, block_time) "+
-		"VALUES ($1, $2, $3, $4)",
-		block.Number.Int64(), block.GasLimit.Int64(), block.GasUsed.Int64(), block.Time.Int64())
+	insertedBlockId := saveBlock(observer, block)
+	saveTransactions(insertedBlockId, block.Transactions, observer)
+}
 
-	for _, transaction := range block.Transactions {
-		observer.saveTransaction(transaction)
+func saveBlock(observer BlockchainDBObserver, block Block) int64 {
+	insertedBlock := observer.Db.QueryRow("Insert INTO blocks "+
+		"(block_number, block_gaslimit, block_gasused, block_time) "+
+		"VALUES ($1, $2, $3, $4) RETURNING id",
+		block.Number.Int64(), block.GasLimit.Int64(), block.GasUsed.Int64(), block.Time.Int64())
+	var blockId int64
+	insertedBlock.Scan(&blockId)
+	return blockId
+}
+
+func saveTransactions(blockId int64, transactions []Transaction, observer BlockchainDBObserver) {
+	for _, transaction := range transactions {
+		observer.Db.MustExec("Insert INTO transactions "+
+			"(block_id, tx_hash, tx_nonce, tx_to, tx_gaslimit, tx_gasprice, tx_value) VALUES ($1, $2, $3, $4, $5, $6, $7)",
+			blockId, transaction.Hash, transaction.Nonce, transaction.To, transaction.GasLimit, transaction.GasPrice, transaction.Value)
 	}
 }
-
-func (observer BlockchainDBObserver) saveTransaction(transaction Transaction) {
-	observer.Db.MustExec("Insert INTO transactions "+
-		"(tx_hash, tx_nonce, tx_to, tx_gaslimit, tx_gasprice, tx_value) VALUES ($1, $2, $3, $4, $5, $6)",
-		transaction.Hash, transaction.Nonce, transaction.To, transaction.GasLimit, transaction.GasPrice, transaction.Value)
-}
diff --git a/core/blockchain_db_observer_test.go b/core/blockchain_db_observer_test.go
index dae1a78b..05d36d45 100644
--- a/core/blockchain_db_observer_test.go
+++ b/core/blockchain_db_observer_test.go
@@ -30,8 +30,8 @@ var _ = Describe("Saving blocks to the database", func() {
 
 	BeforeEach(func() {
 		db, err = sqlx.Connect("postgres", pgConfig)
-		db.MustExec("DELETE FROM blocks")
 		db.MustExec("DELETE FROM transactions")
+		db.MustExec("DELETE FROM blocks")
 	})
 
 	It("implements the observer interface", func() {
@@ -146,6 +146,49 @@ var _ = Describe("Saving blocks to the database", func() {
 			Expect(savedTransaction.GasPrice).To(Equal(gasPrice))
 			Expect(savedTransaction.Value).To(Equal(value))
 		})
+
+		It("associates the transaction with the block", func() {
+			gasLimit := int64(5000)
+
+			txRecord := core.Transaction{}
+			blockNumber := big.NewInt(1)
+			gasUsed := big.NewInt(10)
+			blockTime := big.NewInt(1508981640)
+			block := core.Block{
+				Number:       blockNumber,
+				GasLimit:     big.NewInt(gasLimit),
+				GasUsed:      gasUsed,
+				Time:         blockTime,
+				Transactions: []core.Transaction{txRecord},
+			}
+
+			observer := core.BlockchainDBObserver{Db: db}
+			observer.NotifyBlockAdded(block)
+
+			blockRows, err := db.Query("SELECT id FROM blocks")
+			Expect(err).To(BeNil())
+
+			var actualBlockIds []int64
+			for blockRows.Next() {
+				var actualBlockId int64
+				blockRows.Scan(&actualBlockId)
+				actualBlockIds = append(actualBlockIds, actualBlockId)
+			}
+
+			transactionRows, err := db.Query("SELECT block_id FROM transactions")
+			Expect(err).To(BeNil())
+
+			var transactionBlockIds []int64
+			for transactionRows.Next() {
+				var transactionBlockId int64
+				transactionRows.Scan(&transactionBlockId)
+				transactionBlockIds = append(transactionBlockIds, transactionBlockId)
+			}
+
+			Expect(len(actualBlockIds)).To(Equal(1))
+			Expect(len(transactionBlockIds)).To(Equal(1))
+			Expect(transactionBlockIds[0]).To(Equal(actualBlockIds[0]))
+		})
 	})
 
 })
diff --git a/migrations/1509460207_add_block_id_to_transactions.down.sql b/migrations/1509460207_add_block_id_to_transactions.down.sql
new file mode 100644
index 00000000..ef380fe4
--- /dev/null
+++ b/migrations/1509460207_add_block_id_to_transactions.down.sql
@@ -0,0 +1,2 @@
+ALTER TABLE transactions
+  DROP COLUMN block_id
\ No newline at end of file
diff --git a/migrations/1509460207_add_block_id_to_transactions.up.sql b/migrations/1509460207_add_block_id_to_transactions.up.sql
new file mode 100644
index 00000000..0132dbc7
--- /dev/null
+++ b/migrations/1509460207_add_block_id_to_transactions.up.sql
@@ -0,0 +1,5 @@
+ALTER TABLE transactions
+  ADD COLUMN block_id INTEGER NOT NULL,
+  ADD CONSTRAINT fk_test
+  FOREIGN KEY (block_id)
+  REFERENCES blocks (id)
diff --git a/migrations/schema.sql b/migrations/schema.sql
index 44a5f4f4..2c938aa5 100644
--- a/migrations/schema.sql
+++ b/migrations/schema.sql
@@ -87,7 +87,8 @@ CREATE TABLE transactions (
     tx_to character varying(66),
     tx_gaslimit numeric,
     tx_gasprice numeric,
-    tx_value numeric
+    tx_value numeric,
+    block_id integer NOT NULL
 );
 
 
@@ -148,6 +149,15 @@ ALTER TABLE ONLY transactions
     ADD CONSTRAINT transactions_pkey PRIMARY KEY (id);
 
 
+--
+-- Name: transactions fk_test; Type: FK CONSTRAINT; Schema: public; Owner: -
+--
+
+ALTER TABLE ONLY transactions
+    ADD CONSTRAINT fk_test FOREIGN KEY (block_id) REFERENCES blocks(id);
+
+
 --
 -- PostgreSQL database dump complete
 --
+