How to write unit tests for a piece of code that has a data context?

I am new to unit testing and using Microsoft's unit testing library for following piece of code. When I execute the code normally it executes fine, however when I run unit test written for this code I get a nullreference error at the point of datacontext initialization.

Following is a method similar to the one i am trying to test:

    public int DeleteXYZTableRecord(int Id)
    {
        try
        {
            int XYZTableIdDeleted = -1;
            using (System.Transactions.TransactionScope scope = new System.Transactions.TransactionScope(System.Transactions.TransactionScopeOption.Required,
                                                           new System.Transactions.TransactionOptions { IsolationLevel =  System.Transactions.IsolationLevel.Snapshot }))
            {
                if (Id <= 0)
                {
                    throw new ArgumentException(InvalidIdMessage);
                }
                using (DBDataContext context = new DBDataContext()) //**exception occurs here**
                {//block inside using is irrelevant as its never executed due to the exception
                    XYZTable modifiedXYZRecord = context .XYZTables.Where(x => x.ID.Equals(Id)).FirstOrDefault();
                    if (modifiedXYZRecord == null)
                        throw new NullReferenceException(RecordNotFoundMessage);

                    if (modifiedXYZRecord .pqrRecords == null && modifiedXYZRecord .pqrRecords == null)
                    {
                        modifiedXYZRecord .status = 0;
                        context.SubmitChanges();
                        XYZTableIdDeleted = modifiedXYZRecord .ID;
                    }

                }
                scope.Complete();
            }
            return XYZTableIdDeleted ;
        }
        catch (Exception)
        {

            throw;
        }

    }

And here's the test method I am using to test it:

    [TestMethod]
    public void DeleteXYZTest()
    {

        string exceptionName = String.Empty;

        try
        {

            var target = new DBService.UpdateData .XYZDBHandler();

            // Access the data
            int inputId = 1;
            int expectedOutputId = 1;

            int actual = target.DeleteXYZTableRecord(inputId);
            Assert.AreEqual(expectedOutputId, actual,
                "x:<{0}> y:<{1}>",
                new object[] { expectedOutputId, actual });
        }
        catch (Exception e)
        {
            StringAssert.Contains(e.Message, DBService.UpdateData.XYZDBHandler.RecordNotFoundMessage);

            return;
        }
        Assert.Fail("No exception was thrown.");
    }