Accurate quantification of pharmacokinetic parameters in dynamic contrast-enhanced (DCE) MRI may be affected by the passive diffusion of contrast agent (CA) within the tissue. By introducing an additional term into the standard Tofts-Kety (STK) model, we correct for the effects of CA diffusion. We first develop the theory describing a CA diffusion corrected STK model (DTK). The model is then tested in simulation with simple models of diffusion. The DTK model is also fit to 18 in vivo DCE-MRI acquisitions from murine models of cancer and results are compared to those from the STK model. The DTK model returned estimates with significantly lower error than the STK model (p ≪ 0.001). In poorly perfused (i.e., K(trans) ≤ 0.05 min(-1)) regions the STK model returned unphysical ve values, while the DTK model estimated ve with less than 7% error in noise-free simulations. Results in vivo data revealed similar trends. For voxels with low K(trans) values and late peak concentration times the STK model returned ve estimates >1.0 in 40% of the voxels as compared to only 16% for the DTK model. The DTK model presented here shows promise in estimating accurate kinetic parameters in the presence of passive contrast agent diffusion.