diff --git a/cmdmgr.go b/cmdmgr.go
index ec89162..a60e74c 100644
--- a/cmdmgr.go
+++ b/cmdmgr.go
@@ -22,6 +22,7 @@ import (
 	"fmt"
 	"github.com/conformal/btcjson"
 	"github.com/conformal/btcwallet/wallet"
+	"github.com/conformal/btcwire"
 	"sync"
 	"time"
 )
@@ -568,22 +569,37 @@ func SendMany(reply chan []byte, msg *btcjson.Message) {
 // All three parameters are required, and must be of type string.  If
 // the wallet specified by account already exists, an invalid account
 // name error is returned to the client.
+//
+// Wallets will be created on MainNet, or TestNet3 if btcwallet is run with
+// the --testnet option.
 func CreateEncryptedWallet(reply chan []byte, msg *btcjson.Message) {
 	params, ok := msg.Params.([]interface{})
+	e := &InvalidParams
 	if !ok {
-		log.Error("CreateEncryptedWallet: Cannot parse parameters.")
+		ReplyError(reply, msg.Id, e)
 		return
 	}
-	var wname string
 	if len(params) != 3 {
-		ReplyError(reply, msg.Id, &InvalidParams)
+		e.Message = "Incorrect number of parameters"
+		ReplyError(reply, msg.Id, e)
 		return
 	}
-	wname, ok1 := params[0].(string)
-	desc, ok2 := params[1].(string)
-	pass, ok3 := params[2].(string)
-	if !ok1 || !ok2 || !ok3 {
-		ReplyError(reply, msg.Id, &InvalidParams)
+	wname, ok := params[0].(string)
+	if !ok {
+		e.Message = "Account is not a string"
+		ReplyError(reply, msg.Id, e)
+		return
+	}
+	desc, ok := params[1].(string)
+	if !ok {
+		e.Message = "Description is not a string"
+		ReplyError(reply, msg.Id, e)
+		return
+	}
+	pass, ok := params[2].(string)
+	if !ok {
+		e.Message = "Passphrase is not a string"
+		ReplyError(reply, msg.Id, e)
 		return
 	}
 
@@ -597,7 +613,13 @@ func CreateEncryptedWallet(reply chan []byte, msg *btcjson.Message) {
 	}
 	wallets.RUnlock()
 
-	w, err := wallet.NewWallet(wname, desc, []byte(pass))
+	var net btcwire.BitcoinNet
+	if cfg.TestNet3 {
+		net = btcwire.TestNet3
+	} else {
+		net = btcwire.MainNet
+	}
+	w, err := wallet.NewWallet(wname, desc, []byte(pass), net)
 	if err != nil {
 		log.Error("Error creating wallet: " + err.Error())
 		ReplyError(reply, msg.Id, &InternalError)
diff --git a/config.go b/config.go
index 60555cd..df10f48 100644
--- a/config.go
+++ b/config.go
@@ -45,6 +45,7 @@ type config struct {
 	DataDir     string `short:"D" long:"datadir" description:"Directory to store wallets and transactions"`
 	Username    string `short:"u" long:"username" description:"Username for btcd authorization"`
 	Password    string `short:"P" long:"password" description:"Password for btcd authorization"`
+	TestNet3    bool   `long:"testnet" description:"Use the test network"`
 }
 
 // btcwalletHomeDir returns an OS appropriate home directory for btcwallet.
diff --git a/sockets.go b/sockets.go
index cb79ab1..d737825 100644
--- a/sockets.go
+++ b/sockets.go
@@ -61,7 +61,8 @@ var (
 	// replyHandlers maps between a sequence number (passed as part of
 	// the JSON Id field) and a function to handle a reply or notification
 	// from btcd.  As requests are received, this map is checked for a
-	// handler function to route the reply to.
+	// handler function to route the reply to.  If the function returns
+	// true, the handler is removed from the map.
 	replyHandlers = struct {
 		sync.Mutex
 		m map[uint64]func(interface{}, *btcjson.Error) bool
@@ -178,8 +179,9 @@ func frontendReqsNotifications(ws *websocket.Conn) {
 // websocket and sends messages that btcwallet does not understand to
 // btcd.  Unlike FrontendHandler, exactly one BtcdHandler goroutine runs.
 func BtcdHandler(ws *websocket.Conn) {
+	// Notification channel to return from listener goroutine when
+	// btcd disconnects.
 	disconnected := make(chan int)
-
 	defer func() {
 		close(disconnected)
 	}()
@@ -214,6 +216,7 @@ func BtcdHandler(ws *websocket.Conn) {
 		case r := <-btcdMsgs:
 			if err := websocket.Message.Send(ws, r); err != nil {
 				// btcd disconnected.
+				log.Error("Unable to send message to btcd: %v", err)
 				return
 			}
 		}
@@ -446,13 +449,67 @@ func BtcdConnect(reply chan error) {
 		close(handlerClosed)
 	}()
 
+	BtcdHandshake(btcdws)
+
+	<-handlerClosed
+	reply <- ErrConnLost
+}
+
+// BtcdHandshake first checks that the websocket connection between
+// btcwallet and btcd is valid, that is, that there are no mismatching
+// settings between the two processes (such as running on different
+// Bitcoin networks).  If the sanity checks pass, all wallets are set to
+// be tracked against chain notifications from this btcd connection.
+func BtcdHandshake(ws *websocket.Conn) {
+	seq.Lock()
+	n := seq.n
+	seq.n++
+	seq.Unlock()
+	msg := btcjson.Message{
+		Method: "getcurrentnet",
+		Id:     fmt.Sprintf("btcwallet(%v)", n),
+	}
+	m, _ := json.Marshal(&msg)
+
+	correctNetwork := make(chan bool)
+
+	replyHandlers.Lock()
+	replyHandlers.m[n] = func(result interface{}, err *btcjson.Error) bool {
+		fmt.Println("got reply")
+		fnet, ok := result.(float64)
+		if !ok {
+			log.Error("btcd handshake: result is not a number")
+			ws.Close()
+			correctNetwork <- false
+			return true
+		}
+
+		var walletNetwork btcwire.BitcoinNet
+		if cfg.TestNet3 {
+			walletNetwork = btcwire.TestNet3
+		} else {
+			walletNetwork = btcwire.MainNet
+		}
+
+		correctNetwork <- btcwire.BitcoinNet(fnet) == walletNetwork
+
+		// No additional replies expected, remove handler.
+		return true
+	}
+	replyHandlers.Unlock()
+
+	btcdMsgs <- m
+
+	if !<-correctNetwork {
+		log.Error("btcd and btcwallet running on different Bitcoin networks")
+		ws.Close()
+		return
+	}
+
 	// Begin tracking wallets against this btcd instance.
 	wallets.RLock()
 	for _, w := range wallets.m {
 		w.Track()
 	}
 	wallets.RUnlock()
-
-	<-handlerClosed
-	reply <- ErrConnLost
 }
diff --git a/wallet/wallet.go b/wallet/wallet.go
index 74268a7..86f913b 100644
--- a/wallet/wallet.go
+++ b/wallet/wallet.go
@@ -353,7 +353,7 @@ type Wallet struct {
 // desc's binary representation must not exceed 32 and 256 bytes,
 // respectively.  All address private keys are encrypted with passphrase.
 // The wallet is returned unlocked.
-func NewWallet(name, desc string, passphrase []byte) (*Wallet, error) {
+func NewWallet(name, desc string, passphrase []byte, net btcwire.BitcoinNet) (*Wallet, error) {
 	if binary.Size(name) > 32 {
 		return nil, errors.New("name exceeds 32 byte maximum size")
 	}
@@ -382,7 +382,7 @@ func NewWallet(name, desc string, passphrase []byte) (*Wallet, error) {
 	// compat with armory.
 	w := &Wallet{
 		version: 0, // TODO(jrick): implement versioning
-		net:     btcwire.MainNet,
+		net:     net,
 		flags: walletFlags{
 			useEncryption: true,
 			watchingOnly:  false,
diff --git a/wallet/wallet_test.go b/wallet/wallet_test.go
index b8b862a..27dc5e7 100644
--- a/wallet/wallet_test.go
+++ b/wallet/wallet_test.go
@@ -18,6 +18,7 @@ package wallet
 
 import (
 	"crypto/rand"
+	"github.com/conformal/btcwire"
 	"github.com/davecgh/go-spew/spew"
 	"os"
 	"reflect"
@@ -78,7 +79,7 @@ func TestBtcAddressSerializer(t *testing.T) {
 }
 
 func TestWalletCreationSerialization(t *testing.T) {
-	w1, err := NewWallet("banana wallet", "A wallet for testing.", []byte("banana"))
+	w1, err := NewWallet("banana wallet", "A wallet for testing.", []byte("banana"), btcwire.MainNet)
 	if err != nil {
 		t.Error("Error creating new wallet: " + err.Error())
 	}