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diff --git a/tests/zfs-tests/tests/functional/cli_root/zfs_diff/zfs_diff_encrypted.ksh b/tests/zfs-tests/tests/functional/cli_root/zfs_diff/zfs_diff_encrypted.ksh
new file mode 100755
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+++ b/tests/zfs-tests/tests/functional/cli_root/zfs_diff/zfs_diff_encrypted.ksh
@@ -0,0 +1,63 @@
+#!/bin/ksh -p
+#
+# This file and its contents are supplied under the terms of the
+# Common Development and Distribution License ("CDDL"), version 1.0.
+# You may only use this file in accordance with the terms of version
+# 1.0 of the CDDL.
+#
+# A full copy of the text of the CDDL should have accompanied this
+# source.  A copy of the CDDL is also available via the Internet at
+# http://www.illumos.org/license/CDDL.
+#
+
+#
+# Copyright 2018, Datto Inc.
+#
+
+. $STF_SUITE/include/libtest.shlib
+
+#
+# DESCRIPTION:
+# 'zfs diff' should work with encrypted datasets
+#
+# STRATEGY:
+# 1. Create an encrypted dataset
+# 2. Create two snapshots of the dataset
+# 3. Perform 'zfs diff -Ft' and verify no errors occur
+# 4. Perform the same test on a dataset with large dnodes
+#
+
+verify_runnable "both"
+
+function cleanup
+{
+	destroy_dataset "$TESTPOOL/$TESTFS1" "-r"
+	destroy_dataset "$TESTPOOL/$TESTFS2" "-r"
+}
+
+log_assert "'zfs diff' should work with encrypted datasets"
+log_onexit cleanup
+
+# 1. Create an encrypted dataset
+log_must eval "echo 'password' | zfs create -o encryption=on \
+	-o keyformat=passphrase $TESTPOOL/$TESTFS1"
+MNTPOINT="$(get_prop mountpoint $TESTPOOL/$TESTFS1)"
+
+# 2. Create two snapshots of the dataset
+log_must zfs snapshot $TESTPOOL/$TESTFS1@snap1
+log_must touch "$MNTPOINT/file"
+log_must zfs snapshot $TESTPOOL/$TESTFS1@snap2
+
+# 3. Perform 'zfs diff' and verify no errors occur
+log_must zfs diff -Ft $TESTPOOL/$TESTFS1@snap1 $TESTPOOL/$TESTFS1@snap2
+
+# 4. Perform the same test on a dataset with large dnodes
+log_must eval "echo 'password' | zfs create -o dnodesize=4k \
+	-o encryption=on -o keyformat=passphrase $TESTPOOL/$TESTFS2"
+MNTPOINT="$(get_prop mountpoint $TESTPOOL/$TESTFS2)"
+log_must zfs snapshot $TESTPOOL/$TESTFS2@snap1
+log_must touch "$MNTPOINT/file"
+log_must zfs snapshot $TESTPOOL/$TESTFS2@snap2
+log_must zfs diff -Ft $TESTPOOL/$TESTFS2@snap1 $TESTPOOL/$TESTFS2@snap2
+
+log_pass "'zfs diff' works with encrypted datasets"