Comment 3 for bug 1594849

Ok, I'm misunderstanding overlay option. I think that you too.

In your example "systemd-nspawn --overlay=/path/to/xenial:/path/to/apache:/path/to/container -D /path/to/container" really the last path of overlay option is path INSIDE container. So systemd-nspawn refuse to init the container because /path/to/container is actually empty.

Anyways there is some request in systemd to support something like --overlay=/path/to/xenial:/path/to/apache:/ and get overlay mounted as rootfs of the container.

I've written some topic in systemd-devel list asking for suggestions:
https://lists.freedesktop.org/archives/systemd-devel/2016-August/037355.html

Also a github issue asking for rootfs support:
https://github.com/systemd/systemd/issues/3847