diff --git a/src/wallet/wallet.cpp b/src/wallet/wallet.cpp
--- a/src/wallet/wallet.cpp
+++ b/src/wallet/wallet.cpp
@@ -4374,14 +4374,26 @@
                   __func__);
     }
 
-    // -zapwallettx implies a rescan
-    if (gArgs.GetBoolArg("-zapwallettxes", false) &&
-        gArgs.SoftSetBoolArg("-rescan", true)) {
+    int zapwallettxes = gArgs.GetArg("-zapwallettxes", 0);
+    // -zapwallettxes implies dropping the mempool on startup
+    if (zapwallettxes != 0 && gArgs.SoftSetBoolArg("-persistmempool", false)) {
+        LogPrintf("%s: parameter interaction: -zapwallettxes=%s -> setting "
+                  "-persistmempool=0\n",
+                  __func__, zapwallettxes);
+    }
+
+    // -zapwallettxes implies a rescan
+    if (zapwallettxes != 0) {
         if (is_multiwallet) {
             return InitError(
                 strprintf("%s is only allowed with a single wallet file",
                           "-zapwallettxes"));
         }
+        if (gArgs.SoftSetBoolArg("-rescan", true)) {
+            LogPrintf("%s: parameter interaction: -zapwallettxes=%s -> setting "
+                      "-rescan=1\n",
+                      __func__, zapwallettxes);
+        }
         LogPrintf("%s: parameter interaction: -zapwallettxes=<mode> -> setting "
                   "-rescan=1\n",
                   __func__);
diff --git a/test/functional/zapwallettxes.py b/test/functional/zapwallettxes.py
--- a/test/functional/zapwallettxes.py
+++ b/test/functional/zapwallettxes.py
@@ -2,9 +2,22 @@
 # Copyright (c) 2014-2016 The Bitcoin Core developers
 # Distributed under the MIT software license, see the accompanying
 # file COPYING or http://www.opensource.org/licenses/mit-license.php.
-
+"""Test the zapwallettxes functionality.
+
+- start two bitcoind nodes
+- create two transactions on node 0 - one is confirmed and one is unconfirmed.
+- restart node 0 and verify that both the confirmed and the unconfirmed
+  transactions are still available.
+- restart node 0 with zapwallettxes and persistmempool, and verify that both
+  the confirmed and the unconfirmed transactions are still available.
+- restart node 0 with just zapwallettxed and verify that the confirmed
+  transactions are still available, but that the unconfirmed transaction has
+  been zapped.
+"""
 from test_framework.test_framework import BitcoinTestFramework
-from test_framework.util import *
+from test_framework.util import (assert_equal,
+                                 assert_raises_jsonrpc,
+                                 )
 
 
 class ZapWalletTXesTest (BitcoinTestFramework):
@@ -12,63 +25,56 @@
     def __init__(self):
         super().__init__()
         self.setup_clean_chain = True
-        self.num_nodes = 3
-
-    def setup_network(self):
-        super().setup_network()
-        connect_nodes_bi(self.nodes, 0, 2)
+        self.num_nodes = 2
 
     def run_test(self):
         self.log.info("Mining blocks...")
         self.nodes[0].generate(1)
         self.sync_all()
-        self.nodes[1].generate(101)
+        self.nodes[1].generate(100)
         self.sync_all()
 
-        assert_equal(self.nodes[0].getbalance(), 50)
+        # This transaction will be confirmed
+        txid1 = self.nodes[0].sendtoaddress(self.nodes[1].getnewaddress(), 10)
 
-        txid0 = self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 11)
-        txid1 = self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 10)
-        self.sync_all()
         self.nodes[0].generate(1)
         self.sync_all()
 
-        txid2 = self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 11)
-        txid3 = self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 10)
-
-        tx0 = self.nodes[0].gettransaction(txid0)
-        assert_equal(tx0['txid'], txid0)  # tx0 must be available (confirmed)
+        # This transaction will not be confirmed
+        txid2 = self.nodes[0].sendtoaddress(self.nodes[1].getnewaddress(), 20)
 
-        tx1 = self.nodes[0].gettransaction(txid1)
-        assert_equal(tx1['txid'], txid1)  # tx1 must be available (confirmed)
+        # Confirmed and unconfirmed transactions are now in the wallet.
+        assert_equal(self.nodes[0].gettransaction(txid1)['txid'], txid1)
+        assert_equal(self.nodes[0].gettransaction(txid2)['txid'], txid2)
 
-        tx2 = self.nodes[0].gettransaction(txid2)
-        assert_equal(tx2['txid'], txid2)  # tx2 must be available (unconfirmed)
-
-        tx3 = self.nodes[0].gettransaction(txid3)
-        assert_equal(tx3['txid'], txid3)  # tx3 must be available (unconfirmed)
-
-        # restart bitcoind
+        # Stop-start node0. Both confirmed and unconfirmed transactions remain in the wallet.
         self.stop_node(0)
         self.nodes[0] = self.start_node(0, self.options.tmpdir)
 
-        tx3 = self.nodes[0].gettransaction(txid3)
-        assert_equal(tx3['txid'], txid3)  # tx must be available (unconfirmed)
+        assert_equal(self.nodes[0].gettransaction(txid1)['txid'], txid1)
+        assert_equal(self.nodes[0].gettransaction(txid2)['txid'], txid2)
 
+        # Stop node0 and restart with zapwallettxes and persistmempool. The unconfirmed
+        # transaction is zapped from the wallet, but is re-added when the mempool is reloaded.
         self.stop_node(0)
+        self.nodes[0] = self.start_node(0, self.options.tmpdir, [
+                                        "-persistmempool=1", "-zapwallettxes=2"])
 
-        # restart bitcoind with zapwallettxes
+        assert_equal(self.nodes[0].gettransaction(txid1)['txid'], txid1)
+        assert_equal(self.nodes[0].gettransaction(txid2)['txid'], txid2)
+
+        # Stop node0 and restart with zapwallettxes, but not persistmempool.
+        # The unconfirmed transaction is zapped and is no longer in the wallet.
+        self.stop_node(0)
         self.nodes[0] = self.start_node(
-            0, self.options.tmpdir, ["-zapwallettxes=1"])
+            0, self.options.tmpdir, ["-zapwallettxes=2"])
 
-        assert_raises(JSONRPCException, self.nodes[0].gettransaction, [txid3])
-        # there must be a expection because the unconfirmed wallettx0 must be
-        # gone by now
+        # tx1 is still be available because it was confirmed
+        assert_equal(self.nodes[0].gettransaction(txid1)['txid'], txid1)
 
-        tx0 = self.nodes[0].gettransaction(txid0)
-        assert_equal(tx0['txid'], txid0)
-        # tx0 (confirmed) must still be available because it was
-        # confirmed
+        # This will raise an exception because the unconfirmed transaction has been zapped
+        assert_raises_jsonrpc(-5, 'Invalid or non-wallet transaction id',
+                              self.nodes[0].gettransaction, txid2)
 
 
 if __name__ == '__main__':