Angular2 material 'md-icon' is not a known element with Karma / Jasmine

md-icon is no longer available in the latest versions of Angular Material. All tags/elements are now prefixed with "mat" instead of "md".. So <md-icon> ..becomes.. <mat-icon>

Things've changed in newer versions of Angular Material since @javahaxxor's answer. I've resolved this problem with importing same modules as I do in AppModule (I also need Forms here):

import {
  MatButtonModule,
  MatCardModule,
  MatIconModule,
  MatInputModule,
  MatProgressSpinnerModule,
  MatDialogModule,
  MatCheckboxModule
} from '@angular/material';

// ... not important

beforeEach(async(() => {
    TestBed.configureTestingModule({
      declarations: [ WelcomeComponent ],
      imports: [
        NoopAnimationsModule,
        FormsModule,
        ReactiveFormsModule,
        MatButtonModule,
        MatCardModule,
        MatIconModule,
        MatInputModule,
        MatProgressSpinnerModule,
        MatDialogModule,
        MatCheckboxModule
      ],
      providers: [
        // ...
      ]
    })
    .compileComponents();
  }));

Importing the MaterialModule as suggested by yurzui and creating the component after the promise is returned solved it. Thank you yurzui

import { async, ComponentFixture, TestBed } from '@angular/core/testing';
import { By } from '@angular/platform-browser';
import { DebugElement } from '@angular/core';
import { WatchpanelComponent } from './watchpanel.component';
import { FormsModule } from '@angular/forms';
import { MaterialModule } from '@angular/material';

describe('WatchpanelComponent', () => {
  let component: WatchpanelComponent;
  let fixture: ComponentFixture<WatchpanelComponent>;

  beforeEach(async(() => {
    TestBed.configureTestingModule({
      imports: [ MaterialModule.forRoot() ],
      // forRoot() deprecated
      // in later versions ------^
      declarations: [ WatchpanelComponent ] // declare the test component
    })
    .compileComponents().then(() => {
      fixture = TestBed.createComponent(WatchpanelComponent);
      component = fixture.componentInstance;
      fixture.detectChanges();
    });

  }));

  // beforeEach(() => {
  //   fixture = TestBed.createComponent(WatchpanelComponent);
  //   component = fixture.componentInstance;
  //   fixture.detectChanges();
  // });

  it('should create', () => {
    expect(component).toBeTruthy();
  });
});