diff --git a/.versions b/.versions
index 6d1999e17..0892301b5 100644
--- a/.versions
+++ b/.versions
@@ -3,6 +3,6 @@ GOLANGCI_LINT_VERSION=v2.12.2
 VLLM_VERSION=0.19.1
 VLLM_UPSTREAM_VERSION=0.19.0
 VLLM_METAL_RELEASE=v0.2.0-20260420-142150
-DIFFUSERS_RELEASE=v0.1.0-20260216-000000
+DIFFUSERS_RELEASE=v0.1.0-20260617-000000
 SGLANG_VERSION=0.5.6
 LLAMA_SERVER_VERSION=b9592
diff --git a/Makefile b/Makefile
index b3f4df87f..5212041ad 100644
--- a/Makefile
+++ b/Makefile
@@ -342,8 +342,13 @@ diffusers-build:
 	@if [ -f "$(DIFFUSERS_TARBALL)" ]; then \
 		echo "Tarball already exists: $(DIFFUSERS_TARBALL)"; \
 	else \
+		set -e; \
 		echo "Building diffusers tarball..."; \
 		scripts/build-diffusers-tarball.sh $(DIFFUSERS_RELEASE) $(DIFFUSERS_TARBALL); \
+		if [ ! -f "$(DIFFUSERS_TARBALL)" ]; then \
+			echo "Error: $(DIFFUSERS_TARBALL) was not created"; \
+			exit 1; \
+		fi; \
 		echo "Tarball created: $(DIFFUSERS_TARBALL)"; \
 	fi
 
@@ -369,7 +374,8 @@ diffusers-dev:
 		echo "Usage: make diffusers-dev DIFFUSERS_PATH=../path-to-diffusers-server"; \
 		exit 1; \
 	fi
-	@PYTHON_BIN=""; \
+	@set -e; \
+	PYTHON_BIN=""; \
 	if command -v python3.12 >/dev/null 2>&1; then \
 		PYTHON_BIN="python3.12"; \
 	elif command -v python3 >/dev/null 2>&1; then \
@@ -386,11 +392,11 @@ diffusers-dev:
 	echo "Installing diffusers from $(DIFFUSERS_PATH)..."; \
 	rm -rf "$(DIFFUSERS_INSTALL_DIR)"; \
 	$$PYTHON_BIN -m venv "$(DIFFUSERS_INSTALL_DIR)"; \
-	. "$(DIFFUSERS_INSTALL_DIR)/bin/activate" && \
-		pip install "diffusers==0.36.0" "torch==2.9.1" "transformers==4.57.5" "accelerate==1.3.0" "safetensors==0.5.2" "huggingface_hub==0.34.0" "bitsandbytes==0.49.1" "fastapi==0.115.12" "uvicorn[standard]==0.34.1" "pillow==11.2.1" && \
-		SITE_PACKAGES="$(DIFFUSERS_INSTALL_DIR)/lib/python3.12/site-packages" && \
-		cp -Rp "$(DIFFUSERS_PATH)/python/diffusers_server" "$$SITE_PACKAGES/diffusers_server" && \
-		echo "dev" > "$(DIFFUSERS_INSTALL_DIR)/.diffusers-version"; \
+	. "$(DIFFUSERS_INSTALL_DIR)/bin/activate"; \
+	pip install "diffusers==0.38.0" "torch==2.9.1" "transformers==4.57.5" "accelerate==1.3.0" "safetensors==0.8.0" "huggingface_hub==0.34.0" "bitsandbytes==0.49.1" "fastapi==0.115.12" "uvicorn[standard]==0.34.1" "pillow==11.2.1"; \
+	SITE_PACKAGES="$(DIFFUSERS_INSTALL_DIR)/lib/python3.12/site-packages"; \
+	cp -Rp "$(DIFFUSERS_PATH)/python/diffusers_server" "$$SITE_PACKAGES/diffusers_server"; \
+	echo "dev" > "$(DIFFUSERS_INSTALL_DIR)/.diffusers-version"; \
 	echo "diffusers dev installed from $(DIFFUSERS_PATH)"
 
 diffusers-clean:
diff --git a/pkg/inference/backends/diffusers/diffusers.go b/pkg/inference/backends/diffusers/diffusers.go
index 914ae32b9..1cda1967c 100644
--- a/pkg/inference/backends/diffusers/diffusers.go
+++ b/pkg/inference/backends/diffusers/diffusers.go
@@ -26,7 +26,8 @@ const (
 	Name              = "diffusers"
 	defaultInstallDir = ".docker/model-runner/diffusers"
 	// diffusersVersion is the diffusers release tag to download from Docker Hub.
-	diffusersVersion = "v0.1.0-20260216-000000"
+	// Keep in sync with DIFFUSERS_RELEASE in .versions.
+	diffusersVersion = "v0.1.0-20260617-000000"
 )
 
 var (
@@ -258,7 +259,7 @@ func (d *diffusers) Run(ctx context.Context, socket, model string, modelRef stri
 		BackendName:      "Diffusers",
 		Socket:           socket,
 		BinaryPath:       d.pythonPath,
-		SandboxPath:      "",
+		SandboxPath:      d.installDir,
 		SandboxConfig:    sandbox.ConfigurationPython,
 		Args:             args,
 		Logger:           d.log,
diff --git a/scripts/build-diffusers-tarball.sh b/scripts/build-diffusers-tarball.sh
index ec85f3613..566e4884d 100755
--- a/scripts/build-diffusers-tarball.sh
+++ b/scripts/build-diffusers-tarball.sh
@@ -40,15 +40,19 @@ fi
 echo "Installing standalone Python 3.12 via uv..."
 uv python install 3.12
 
-PYTHON_BIN=$(uv python find 3.12)
+PYTHON_BIN=$(uv python find 3.12 | awk '/^\// { path=$0 } END { print path }')
+if [ -z "$PYTHON_BIN" ]; then
+    echo "Error: could not resolve uv Python 3.12 path" >&2
+    exit 1
+fi
 PYTHON_PREFIX=$(cd "$(dirname "$PYTHON_BIN")/.." && pwd)
 echo "Using standalone Python from: $PYTHON_PREFIX"
 
-DIFFUSERS_VERSION="0.36.0"
+DIFFUSERS_VERSION="0.38.0"
 TORCH_VERSION="2.9.1"
 TRANSFORMERS_VERSION="4.57.5"
 ACCELERATE_VERSION="1.3.0"
-SAFETENSORS_VERSION="0.5.2"
+SAFETENSORS_VERSION="0.8.0"
 HUGGINGFACE_HUB_VERSION="0.34.0"
 BITSANDBYTES_VERSION="0.49.1"
 FASTAPI_VERSION="0.115.12"