diff --git a/module/zfs/vdev.c b/module/zfs/vdev.c
index 9305bd894d6f..320d19c21a84 100644
--- a/module/zfs/vdev.c
+++ b/module/zfs/vdev.c
@@ -3149,9 +3149,9 @@ vdev_dtl_should_excise(vdev_t *vd, boolean_t rebuild_done)
  * Reassess DTLs after a config change or scrub completion. If txg == 0 no
  * write operations will be issued to the pool.
  */
-void
-vdev_dtl_reassess(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
-    boolean_t scrub_done, boolean_t rebuild_done)
+static void
+vdev_dtl_reassess_impl(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
+    boolean_t scrub_done, boolean_t rebuild_done, boolean_t dtl_outage)
 {
 	spa_t *spa = vd->vdev_spa;
 	avl_tree_t reftree;
@@ -3160,8 +3160,8 @@ vdev_dtl_reassess(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
 	ASSERT(spa_config_held(spa, SCL_ALL, RW_READER) != 0);
 
 	for (int c = 0; c < vd->vdev_children; c++)
-		vdev_dtl_reassess(vd->vdev_child[c], txg,
-		    scrub_txg, scrub_done, rebuild_done);
+		vdev_dtl_reassess_impl(vd->vdev_child[c], txg,
+		    scrub_txg, scrub_done, rebuild_done, dtl_outage);
 
 	if (vd == spa->spa_root_vdev || !vdev_is_concrete(vd) || vd->vdev_aux)
 		return;
@@ -3255,7 +3255,15 @@ vdev_dtl_reassess(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
 		if (scrub_done)
 			range_tree_vacate(vd->vdev_dtl[DTL_SCRUB], NULL, NULL);
 		range_tree_vacate(vd->vdev_dtl[DTL_OUTAGE], NULL, NULL);
-		if (!vdev_readable(vd))
+
+		/*
+		 * For the dtl_outage case, treat members of a replacing vdev
+		 * as if they are not available. It's more likely than not that
+		 * a vdev in a replacing vdev could encounter read errors so
+		 * treat it as not being able to contribute.
+		 */
+		if (!vdev_readable(vd) || (dtl_outage &&
+		    vd->vdev_parent->vdev_ops == &vdev_replacing_ops))
 			range_tree_add(vd->vdev_dtl[DTL_OUTAGE], 0, -1ULL);
 		else
 			range_tree_walk(vd->vdev_dtl[DTL_MISSING],
@@ -3321,6 +3329,20 @@ vdev_dtl_reassess(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
 	}
 }
 
+void
+vdev_dtl_reassess(vdev_t *vd, uint64_t txg, uint64_t scrub_txg,
+    boolean_t scrub_done, boolean_t rebuild_done)
+{
+	return (vdev_dtl_reassess_impl(vd, txg, scrub_txg, scrub_done,
+	    rebuild_done, B_FALSE));
+}
+
+static void
+vdev_dtl_reassess_outage(vdev_t *vd)
+{
+	return (vdev_dtl_reassess_impl(vd, 0, 0, B_FALSE, B_FALSE, B_TRUE));
+}
+
 /*
  * Iterate over all the vdevs except spare, and post kobj events
  */
@@ -3548,7 +3570,11 @@ vdev_dtl_sync(vdev_t *vd, uint64_t txg)
 }
 
 /*
- * Determine whether the specified vdev can be offlined/detached/removed
+ * Determine whether the specified vdev can be
+ * - offlined
+ * - detached
+ * - removed
+ * - faulted
  * without losing data.
  */
 boolean_t
@@ -3570,10 +3596,10 @@ vdev_dtl_required(vdev_t *vd)
 	 * If not, we can safely offline/detach/remove the device.
 	 */
 	vd->vdev_cant_read = B_TRUE;
-	vdev_dtl_reassess(tvd, 0, 0, B_FALSE, B_FALSE);
+	vdev_dtl_reassess_outage(tvd);
 	required = !vdev_dtl_empty(tvd, DTL_OUTAGE);
 	vd->vdev_cant_read = cant_read;
-	vdev_dtl_reassess(tvd, 0, 0, B_FALSE, B_FALSE);
+	vdev_dtl_reassess_outage(tvd);
 
 	if (!required && zio_injection_enabled) {
 		required = !!zio_handle_device_injection(vd, NULL,
diff --git a/tests/runfiles/common.run b/tests/runfiles/common.run
index f89a4b3e0aae..14aa942e0225 100644
--- a/tests/runfiles/common.run
+++ b/tests/runfiles/common.run
@@ -709,6 +709,10 @@ tags = ['functional', 'exec']
 tests = ['fallocate_punch-hole']
 tags = ['functional', 'fallocate']
 
+[tests/functional/fault]
+tests = ['fault_limits']
+tags = ['functional', 'fault']
+
 [tests/functional/features/async_destroy]
 tests = ['async_destroy_001_pos']
 tags = ['functional', 'features', 'async_destroy']
diff --git a/tests/zfs-tests/tests/Makefile.am b/tests/zfs-tests/tests/Makefile.am
index 994fba173368..da6dc235cf57 100644
--- a/tests/zfs-tests/tests/Makefile.am
+++ b/tests/zfs-tests/tests/Makefile.am
@@ -1525,6 +1525,7 @@ nobase_dist_datadir_zfs_tests_tests_SCRIPTS += \
 	functional/fault/cleanup.ksh \
 	functional/fault/decompress_fault.ksh \
 	functional/fault/decrypt_fault.ksh \
+	functional/fault/fault_limits.ksh \
 	functional/fault/scrub_after_resilver.ksh \
 	functional/fault/suspend_resume_single.ksh \
 	functional/fault/setup.ksh \
diff --git a/tests/zfs-tests/tests/functional/fault/fault_limits.ksh b/tests/zfs-tests/tests/functional/fault/fault_limits.ksh
new file mode 100755
index 000000000000..2f62a15c392b
--- /dev/null
+++ b/tests/zfs-tests/tests/functional/fault/fault_limits.ksh
@@ -0,0 +1,96 @@
+#!/bin/ksh -p
+#
+# CDDL HEADER START
+#
+# The contents of this file are subject to the terms of the
+# Common Development and Distribution License (the "License").
+# You may not use this file except in compliance with the License.
+#
+# You can obtain a copy of the license at usr/src/OPENSOLARIS.LICENSE
+# or https://opensource.org/licenses/CDDL-1.0.
+# See the License for the specific language governing permissions
+# and limitations under the License.
+#
+# When distributing Covered Code, include this CDDL HEADER in each
+# file and include the License file at usr/src/OPENSOLARIS.LICENSE.
+# If applicable, add the following below this CDDL HEADER, with the
+# fields enclosed by brackets "[]" replaced with your own identifying
+# information: Portions Copyright [yyyy] [name of copyright owner]
+#
+# CDDL HEADER END
+#
+#
+# Copyright (c) 2024 by Klara, Inc.
+#
+
+. $STF_SUITE/include/libtest.shlib
+. $STF_SUITE/tests/functional/fault/fault.cfg
+
+#
+# DESCRIPTION: Verify that raidz children vdev fault count is restricted
+#
+# STRATEGY:
+# 1. Create a raidz2 or raidz3 pool and add some data to it
+# 2. Replace one of the child vdevs to create a replacing vdev
+# 3. While it is resilvering, attempt to fault disks
+# 4. Verify that less than parity count was faulted while replacing
+#
+
+TESTPOOL="fault-test-pool"
+PARITY=$((RANDOM%(2) + 2))
+VDEV_CNT=$((4 + (2 * PARITY)))
+VDEV_SIZ=512M
+
+function cleanup
+{
+	poolexists "$TESTPOOL" && log_must_busy zpool destroy "$TESTPOOL"
+
+	for i in {0..$((VDEV_CNT - 1))}; do
+		log_must rm -f "$TEST_BASE_DIR/dev-$i"
+	done
+}
+
+log_onexit cleanup
+log_assert "restricts raidz children vdev fault count"
+
+log_note "creating $VDEV_CNT vdevs for parity $PARITY test"
+typeset -a disks
+for i in {0..$((VDEV_CNT - 1))}; do
+	device=$TEST_BASE_DIR/dev-$i
+	log_must truncate -s $VDEV_SIZ $device
+	disks[${#disks[*]}+1]=$device
+done
+
+log_must zpool create -f ${TESTPOOL} raidz${PARITY} ${disks[1..$((VDEV_CNT - 1))]}
+
+# Add some data to the pool
+log_must zfs create $TESTPOOL/fs
+MNTPOINT="$(get_prop mountpoint $TESTPOOL/fs)"
+log_must fill_fs $MNTPOINT $PARITY 200 32768 1000 Z
+sync_pool $TESTPOOL
+
+# Replace the last child vdev to form a replacing vdev
+log_must zpool replace ${TESTPOOL} ${disks[$((VDEV_CNT - 1))]} ${disks[$VDEV_CNT]}
+# imediately offline replacement disk to keep replacing vdev around
+log_must zpool offline ${TESTPOOL} ${disks[$VDEV_CNT]}
+
+# Fault disks while a replacing vdev is still active
+for disk in ${disks[0..$PARITY]}; do
+	log_must zpool offline -tf ${TESTPOOL} $disk
+done
+
+zpool status $TESTPOOL
+
+# Count the faults that succeeded
+faults=0
+for disk in ${disks[0..$PARITY]}; do
+	state=$(zpool get -H -o value state ${TESTPOOL} ${disk})
+	if [ "$state" = "FAULTED" ] ; then
+		((faults=faults+1))
+	fi
+done
+
+log_must test "$faults" -lt "$PARITY"
+log_must test "$faults" -gt 0
+
+log_pass "restricts raidz children vdev fault count"