diff --git a/src/rpc/blockchain.cpp b/src/rpc/blockchain.cpp
--- a/src/rpc/blockchain.cpp
+++ b/src/rpc/blockchain.cpp
@@ -1038,10 +1038,12 @@
             "gettxout \"txid\" n ( include_mempool )\n"
             "\nReturns details about an unspent transaction output.\n"
             "\nArguments:\n"
-            "1. \"txid\"       (string, required) The transaction id\n"
-            "2. n              (numeric, required) vout number\n"
-            "3. include_mempool  (boolean, optional) Whether to include the "
-            "mempool\n"
+            "1. \"txid\"             (string, required) The transaction id\n"
+            "2. \"n\"                (numeric, required) vout number\n"
+            "3. \"include_mempool\"  (boolean, optional) Whether to include "
+            "the mempool. Default: true."
+            "     Note that an unspent output that is spent in the mempool "
+            "won't appear.\n"
             "\nResult:\n"
             "{\n"
             "  \"bestblock\" : \"hash\",    (string) the block hash\n"
diff --git a/test/functional/wallet.py b/test/functional/wallet.py
--- a/test/functional/wallet.py
+++ b/test/functional/wallet.py
@@ -53,14 +53,51 @@
         assert_equal(self.nodes[2].getbalance(), 0)
 
         # Check that only first and second nodes have UTXOs
-        assert_equal(len(self.nodes[0].listunspent()), 1)
+        utxos = self.nodes[0].listunspent()
+        assert_equal(len(utxos), 1)
         assert_equal(len(self.nodes[1].listunspent()), 1)
         assert_equal(len(self.nodes[2].listunspent()), 0)
 
+        self.log.info("test gettxout")
+        confirmed_txid, confirmed_index = utxos[0]["txid"], utxos[0]["vout"]
+        # First, outputs that are unspent both in the chain and in the
+        # mempool should appear with or without include_mempool
+        txout = self.nodes[0].gettxout(
+            txid=confirmed_txid, n=confirmed_index, include_mempool=False)
+        assert_equal(txout['value'], 50)
+        txout = self.nodes[0].gettxout(
+            txid=confirmed_txid, n=confirmed_index, include_mempool=True)
+        assert_equal(txout['value'], 50)
+
         # Send 21 BTC from 0 to 2 using sendtoaddress call.
+        # Locked memory should use at least 32 bytes to sign each transaction
+        self.log.info("test getmemoryinfo")
+        memory_before = self.nodes[0].getmemoryinfo()
         self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 11)
-        self.nodes[0].sendtoaddress(self.nodes[2].getnewaddress(), 10)
-
+        mempool_txid = self.nodes[0].sendtoaddress(
+            self.nodes[2].getnewaddress(), 10)
+        memory_after = self.nodes[0].getmemoryinfo()
+        assert(memory_before['locked']['used'] +
+               64 <= memory_after['locked']['used'])
+
+        self.log.info("test gettxout (second part)")
+        # utxo spent in mempool should be visible if you exclude mempool
+        # but invisible if you include mempool
+        txout = self.nodes[0].gettxout(confirmed_txid, confirmed_index, False)
+        assert_equal(txout['value'], 50)
+        txout = self.nodes[0].gettxout(confirmed_txid, confirmed_index, True)
+        assert txout is None
+        # new utxo from mempool should be invisible if you exclude mempool
+        # but visible if you include mempool
+        txout = self.nodes[0].gettxout(mempool_txid, 0, False)
+        assert txout is None
+        txout1 = self.nodes[0].gettxout(mempool_txid, 0, True)
+        txout2 = self.nodes[0].gettxout(mempool_txid, 1, True)
+        # note the mempool tx will have randomly assigned indices
+        # but 10 will go to node2 and the rest will go to node0
+        balance = self.nodes[0].getbalance()
+        assert_equal(set([txout1['value'], txout2['value']]),
+                     set([10, balance]))
         walletinfo = self.nodes[0].getwalletinfo()
         assert_equal(walletinfo['immature_balance'], 0)