diff --git a/e2e/tests-dfx/error_context.bash b/e2e/tests-dfx/error_context.bash
index bc810204e9..dbfa9402a3 100644
--- a/e2e/tests-dfx/error_context.bash
+++ b/e2e/tests-dfx/error_context.bash
@@ -199,4 +199,15 @@ teardown() {
   assert_command_fail dfx canister status hello_backend
   assert_match "not part of the controllers" # this is part of the error explanation
   assert_match "'dfx canister update-settings --add-controller <controller principal to add> <canister id/name or --all> \(--network ic\)'" # this is part of the solution
-}
\ No newline at end of file
+}
+
+@test "bad wallet canisters get diagnosed" {
+  dfx_new hello
+  dfx_start
+  dfx deploy hello_backend --no-wallet
+  id=$(dfx canister id hello_backend)
+  dfx identity set-wallet "$id" --force
+  assert_command_fail dfx wallet balance
+  assert_contains "it did not contain a function that dfx was looking for"
+  assert_contains "dfx identity set-wallet <PRINCIPAL> --identity <IDENTITY>"
+}
diff --git a/src/dfx/src/lib/diagnosis.rs b/src/dfx/src/lib/diagnosis.rs
index 16975f6640..eb121f14ab 100644
--- a/src/dfx/src/lib/diagnosis.rs
+++ b/src/dfx/src/lib/diagnosis.rs
@@ -45,6 +45,9 @@ pub fn diagnose(err: &AnyhowError) -> Diagnosis {
     }
 
     if let Some(agent_err) = err.downcast_ref::<AgentError>() {
+        if wallet_method_not_found(agent_err) {
+            return diagnose_bad_wallet();
+        }
         if not_a_controller(agent_err) {
             return diagnose_http_403();
         } else if *agent_err == AgentError::CertificateNotAuthorized() {
@@ -82,6 +85,22 @@ fn not_a_controller(err: &AgentError) -> bool {
             matches!(std::str::from_utf8(payload.content.as_slice()), Ok("Wrong sender")))
 }
 
+fn wallet_method_not_found(err: &AgentError) -> bool {
+    match err {
+        AgentError::CertifiedReject(RejectResponse {
+            reject_code: RejectCode::CanisterError,
+            reject_message,
+            ..
+        }) if reject_message.contains("Canister has no update method 'wallet_") => true,
+        AgentError::UncertifiedReject(RejectResponse {
+            reject_code: RejectCode::CanisterError,
+            reject_message,
+            ..
+        }) if reject_message.contains("Canister has no query method 'wallet_") => true,
+        _ => false,
+    }
+}
+
 fn diagnose_http_403() -> Diagnosis {
     let error_explanation = "Each canister has a set of controllers. Only those controllers have access to the canister's management functions (like install_code or stop_canister).\n\
         The principal you are using to call a management function is not part of the controllers.";
@@ -150,3 +169,21 @@ See also release notes: https://forum.dfinity.org/t/dfx-0-11-0-is-promoted-with-
 
     (Some(explanation.to_string()), Some(suggestion.to_string()))
 }
+
+fn diagnose_bad_wallet() -> Diagnosis {
+    let explanation = "\
+A wallet has been previously configured (e.g. via `dfx identity set-wallet`).
+However, it did not contain a function that dfx was looking for.
+This may be because:
+    - a wallet was correctly installed, but is outdated
+    - `dfx identity set-wallet` was used on a non-wallet canister";
+    let suggestion = "\
+If you have had the wallet for a while, then you may need to update it with
+`dfx wallet upgrade`. The release notes indicate when there is a new wallet.
+If you recently ran `dfx identity set-wallet`, and the canister may have been
+wrong, you can set a new wallet with
+`dfx identity set-wallet <PRINCIPAL> --identity <IDENTITY>`.
+If you're using a local replica and configuring a wallet was a mistake, you can
+recreate the replica with `dfx stop && dfx start --clean` to start over.";
+    (Some(explanation.to_string()), Some(suggestion.to_string()))
+}