diff --git a/doc/release-notes-17264.md b/doc/release-notes-17264.md
new file mode 100644
index 0000000000..f6e0979596
--- /dev/null
+++ b/doc/release-notes-17264.md
@@ -0,0 +1,4 @@
+Updated RPCs
+------------
+
+- `walletprocesspsbt` and `walletcreatefundedpsbt` now include BIP 32 derivation paths by default for public keys if we know them. This can be disabled by setting `bip32derivs` to `false`.
diff --git a/src/wallet/psbtwallet.h b/src/wallet/psbtwallet.h
index bcdd700bce..17b40c0c1b 100644
--- a/src/wallet/psbtwallet.h
+++ b/src/wallet/psbtwallet.h
@@ -27,6 +27,6 @@
               bool& complete,
               int sighash_type = 1 /* SIGHASH_ALL */,
               bool sign = true,
-              bool bip32derivs = false);
+              bool bip32derivs = true);
 
 #endif // BITCOIN_WALLET_PSBTWALLET_H
diff --git a/src/wallet/rpcwallet.cpp b/src/wallet/rpcwallet.cpp
index cf72455a9d..daf8f473f0 100644
--- a/src/wallet/rpcwallet.cpp
+++ b/src/wallet/rpcwallet.cpp
@@ -3866,7 +3866,7 @@ UniValue walletprocesspsbt(const JSONRPCRequest& request)
     "       \"ALL|ANYONECANPAY\"\n"
     "       \"NONE|ANYONECANPAY\"\n"
     "       \"SINGLE|ANYONECANPAY\""},
-            {"bip32derivs", RPCArg::Type::BOOL, /* default */ "false", "If true, includes the BIP 32 derivation paths for public keys if we know them"},
+            {"bip32derivs", RPCArg::Type::BOOL, /* default */ "true", "Include BIP 32 derivation paths for public keys if we know them"},
         },
         RPCResult{
             RPCResult::Type::OBJ, "", "",
@@ -3902,7 +3902,7 @@ UniValue walletprocesspsbt(const JSONRPCRequest& request)
 
     // Fill transaction with our data and also sign
     bool sign = request.params[1].isNull() ? true : request.params[1].get_bool();
-    bool bip32derivs = request.params[3].isNull() ? false : request.params[3].get_bool();
+    bool bip32derivs = request.params[3].isNull() ? true : request.params[3].get_bool();
     bool complete = true;
     const TransactionError err = FillPSBT(pwallet, psbtx, complete, nHashType, sign, bip32derivs);
     if (err != TransactionError::OK) {
@@ -3975,7 +3975,7 @@ UniValue walletcreatefundedpsbt(const JSONRPCRequest& request)
                     "         \"CONSERVATIVE\""},
                 },
                 "options"},
-            {"bip32derivs", RPCArg::Type::BOOL, /* default */ "false", "If true, includes the BIP 32 derivation paths for public keys if we know them"},
+            {"bip32derivs", RPCArg::Type::BOOL, /* default */ "true", "Include BIP 32 derivation paths for public keys if we know them"},
         },
         RPCResult{
             RPCResult::Type::OBJ, "", "",
@@ -4013,7 +4013,7 @@ UniValue walletcreatefundedpsbt(const JSONRPCRequest& request)
     PartiallySignedTransaction psbtx{rawTx};
 
     // Fill transaction with out data but don't sign
-    bool bip32derivs = request.params[4].isNull() ? false : request.params[4].get_bool();
+    bool bip32derivs = request.params[4].isNull() ? true : request.params[4].get_bool();
     bool complete = true;
     const TransactionError err = FillPSBT(pwallet, psbtx, complete, 1, false, bip32derivs);
     if (err != TransactionError::OK) {
diff --git a/test/functional/rpc_psbt.py b/test/functional/rpc_psbt.py
index 02491860ab..e9dac8b66a 100755
--- a/test/functional/rpc_psbt.py
+++ b/test/functional/rpc_psbt.py
@@ -133,12 +133,20 @@ class PSBTTest(BitcoinTestFramework):
         psbt_orig = self.nodes[0].createpsbt([{"txid":txid1,  "vout":vout1}, {"txid":txid2, "vout":vout2}], {self.nodes[0].getnewaddress():25.999})
 
         # Update psbts, should only have data for one input and not the other
-        psbt1 = self.nodes[1].walletprocesspsbt(psbt_orig)['psbt']
+        psbt1 = self.nodes[1].walletprocesspsbt(psbt_orig, False, "ALL")['psbt']
         psbt1_decoded = self.nodes[0].decodepsbt(psbt1)
         assert psbt1_decoded['inputs'][0] and not psbt1_decoded['inputs'][1]
-        psbt2 = self.nodes[2].walletprocesspsbt(psbt_orig)['psbt']
+        # Check that BIP32 path was added
+        assert "bip32_derivs" in psbt1_decoded['inputs'][0]
+        psbt2 = self.nodes[2].walletprocesspsbt(psbt_orig, False, "ALL", False)['psbt']
         psbt2_decoded = self.nodes[0].decodepsbt(psbt2)
         assert not psbt2_decoded['inputs'][0] and psbt2_decoded['inputs'][1]
+        # Check that BIP32 paths were not added
+        assert "bip32_derivs" not in psbt2_decoded['inputs'][1]
+
+        # Sign PSBTs (workaround issue #18039)
+        psbt1 = self.nodes[1].walletprocesspsbt(psbt_orig)['psbt']
+        psbt2 = self.nodes[2].walletprocesspsbt(psbt_orig)['psbt']
 
         # Combine, finalize, and send the psbts
         combined = self.nodes[0].combinepsbt([psbt1, psbt2])