diff --git a/builtin/logical/transit/backend_test.go b/builtin/logical/transit/backend_test.go
index 6ea5252248..7817d097be 100644
--- a/builtin/logical/transit/backend_test.go
+++ b/builtin/logical/transit/backend_test.go
@@ -39,6 +39,19 @@ func TestBackend_basic(t *testing.T) {
 	})
 }
 
+func TestBackend_upsert(t *testing.T) {
+	decryptData := make(map[string]interface{})
+	logicaltest.Test(t, logicaltest.TestCase{
+		Factory: Factory,
+		Steps: []logicaltest.TestStep{
+			testAccStepReadPolicy(t, "test", true, false),
+			testAccStepEncryptUpsert(t, "test", testPlaintext, decryptData),
+			testAccStepReadPolicy(t, "test", false, false),
+			testAccStepDecrypt(t, "test", testPlaintext, decryptData),
+		},
+	})
+}
+
 func TestBackend_datakey(t *testing.T) {
 	dataKeyInfo := make(map[string]interface{})
 	logicaltest.Test(t, logicaltest.TestCase{
@@ -268,6 +281,30 @@ func testAccStepEncrypt(
 	}
 }
 
+func testAccStepEncryptUpsert(
+	t *testing.T, name, plaintext string, decryptData map[string]interface{}) logicaltest.TestStep {
+	return logicaltest.TestStep{
+		Operation: logical.CreateOperation,
+		Path:      "encrypt/" + name,
+		Data: map[string]interface{}{
+			"plaintext": base64.StdEncoding.EncodeToString([]byte(plaintext)),
+		},
+		Check: func(resp *logical.Response) error {
+			var d struct {
+				Ciphertext string `mapstructure:"ciphertext"`
+			}
+			if err := mapstructure.Decode(resp.Data, &d); err != nil {
+				return err
+			}
+			if d.Ciphertext == "" {
+				return fmt.Errorf("missing ciphertext")
+			}
+			decryptData["ciphertext"] = d.Ciphertext
+			return nil
+		},
+	}
+}
+
 func testAccStepEncryptContext(
 	t *testing.T, name, plaintext, context string, decryptData map[string]interface{}) logicaltest.TestStep {
 	return logicaltest.TestStep{
diff --git a/builtin/logical/transit/path_encrypt.go b/builtin/logical/transit/path_encrypt.go
index 10dadfbd1c..fc2e2048f3 100644
--- a/builtin/logical/transit/path_encrypt.go
+++ b/builtin/logical/transit/path_encrypt.go
@@ -30,14 +30,28 @@ func (b *backend) pathEncrypt() *framework.Path {
 		},
 
 		Callbacks: map[logical.Operation]framework.OperationFunc{
+			logical.CreateOperation: b.pathEncryptWrite,
 			logical.UpdateOperation: b.pathEncryptWrite,
 		},
 
+		ExistenceCheck: b.pathEncryptExistenceCheck,
+
 		HelpSynopsis:    pathEncryptHelpSyn,
 		HelpDescription: pathEncryptHelpDesc,
 	}
 }
 
+func (b *backend) pathEncryptExistenceCheck(
+	req *logical.Request, d *framework.FieldData) (bool, error) {
+	name := d.Get("name").(string)
+	lp, err := b.policies.getPolicy(req, name)
+	if err != nil {
+		return false, err
+	}
+
+	return lp != nil, nil
+}
+
 func (b *backend) pathEncryptWrite(
 	req *logical.Request, d *framework.FieldData) (*logical.Response, error) {
 	name := d.Get("name").(string)
@@ -65,7 +79,19 @@ func (b *backend) pathEncryptWrite(
 
 	// Error if invalid policy
 	if lp == nil {
-		return logical.ErrorResponse("policy not found"), logical.ErrInvalidRequest
+		if req.Operation != logical.CreateOperation {
+			return logical.ErrorResponse("policy not found"), logical.ErrInvalidRequest
+		}
+
+		isDerived := len(context) != 0
+
+		lp, err = b.policies.generatePolicy(req.Storage, name, isDerived)
+		// If the error is that the policy has been created in the interim we
+		// will get the policy back, so only consider it an error if err is not
+		// nil and we do not get a policy back
+		if err != nil && lp != nil {
+			return nil, err
+		}
 	}
 
 	lp.RLock()
diff --git a/website/source/docs/install/upgrade-to-0.5.html.md b/website/source/docs/install/upgrade-to-0.5.html.md
index bc14885ff5..6fdc4ebfef 100644
--- a/website/source/docs/install/upgrade-to-0.5.html.md
+++ b/website/source/docs/install/upgrade-to-0.5.html.md
@@ -48,14 +48,15 @@ endpoint. Since the `default` policy contains `auth/token/renew-self` this
 makes it much more likely that the request will succeed rather than somewhat
 confusingly failing due to a lack of permissions on `auth/token/renew`.
 
-## Transit No Longer Upserts Keys By Default
+## Transit Upsertion Behavior Uses Capabilities
 
 Previously, attempting to encrypt with a key that did not exist would create a
 key with default values. This was convenient but ultimately allowed a client to
 potentially escape an ACL policy restriction, albeit without any dangerous
-access. However, this is now disabled by default. If you want to enable this
-behavior, you can use the `allow_upsert` parameter to the new `transit/config`
-endpoint to turn it back on.
+access. Now that Vault supports more granular capabilities in policies,
+upsertion behavior is controlled by whether the client has the `create`
+capability for the request (upsertion is allowed) or only the `update`
+capability (upsertion is denied).
 
 ## etcd Physical Backend Uses `sync`
 
diff --git a/website/source/docs/secrets/transit/index.html.md b/website/source/docs/secrets/transit/index.html.md
index 6d63099694..c18f502bd5 100644
--- a/website/source/docs/secrets/transit/index.html.md
+++ b/website/source/docs/secrets/transit/index.html.md
@@ -305,7 +305,13 @@ only encrypt or decrypt using the named keys they need access to.
 <dl class="api">
   <dt>Description</dt>
   <dd>
-    Encrypts the provided plaintext using the named key.
+    Encrypts the provided plaintext using the named key. This path supports the
+    `create` and `update` policy capabilities as follows: if the user has the
+    `create` capability for this endpoint in their policies, and the key does
+    not exist, it will be upserted with default values (whether the key
+    requires derivation depends on whether the context parameter is empty or
+    not). If the user only has `update` capability and the key does not exist,
+    an error will be returned.
   </dd>
 
   <dt>Method</dt>