diff --git a/src/libraries/System.Security.Cryptography.Xml/tests/CanonicalXmlEntityReferenceTest.cs b/src/libraries/System.Security.Cryptography.Xml/tests/CanonicalXmlEntityReferenceTest.cs
new file mode 100644
index 00000000000000..ecb430f68306d9
--- /dev/null
+++ b/src/libraries/System.Security.Cryptography.Xml/tests/CanonicalXmlEntityReferenceTest.cs
@@ -0,0 +1,170 @@
+// Licensed to the .NET Foundation under one or more agreements.
+// The .NET Foundation licenses this file to you under the MIT license.
+
+using System.IO;
+using System.Text;
+using System.Xml;
+using Xunit;
+
+namespace System.Security.Cryptography.Xml.Tests
+{
+    public class CanonicalXmlEntityReferenceTest
+    {
+        [Fact]
+        public void EntityReferenceInCanonicalization()
+        {
+            // This test exercises CanonicalXmlEntityReference by using a transform
+            // that internally creates a CanonicalXmlDocument and loads XML into it.
+            // When an XmlNodeReader reads from a document containing entity references,
+            // the target document's CreateEntityReference method is called.
+
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY test ""TestValue"">
+]>
+<root>&test;</root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            // Use C14N transform which internally uses CanonicalXmlDocument
+            XmlDsigC14NTransform transform = new XmlDsigC14NTransform();
+            transform.LoadInput(doc);
+            
+            Stream output = (Stream)transform.GetOutput();
+            string result = new StreamReader(output, Encoding.UTF8).ReadToEnd();
+            
+            // Entity should be expanded in canonical form
+            Assert.Contains("TestValue", result);
+            Assert.Contains("<root>", result);
+        }
+
+        [Fact]
+        public void EntityReferenceWithXmlNodeList()
+        {
+            // Test with XmlNodeList input which triggers different code path in CanonicalXml
+            // When using XmlNodeList, nodes not in the list are not included, which may affect
+            // entity reference expansion in the canonical output
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY test ""Hello"">
+]>
+<root><child>&test;</child></root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            XmlNodeList nodeList = doc.SelectNodes("//child")!;
+
+            XmlDsigC14NTransform transform = new XmlDsigC14NTransform();
+            transform.LoadInput(nodeList);
+            
+            Stream output = (Stream)transform.GetOutput();
+            string result = new StreamReader(output, Encoding.UTF8).ReadToEnd();
+            
+            // The node should be present in canonical form
+            Assert.Contains("<child>", result);
+            Assert.Contains("</child>", result);
+        }
+
+        [Fact]
+        public void EntityReferenceWithCommentsIncluded()
+        {
+            // Test with includeComments = true
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY ent ""EntityContent"">
+]>
+<root><!--comment-->&ent;</root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            XmlDsigC14NWithCommentsTransform transform = new XmlDsigC14NWithCommentsTransform();
+            transform.LoadInput(doc);
+            
+            Stream output = (Stream)transform.GetOutput();
+            string result = new StreamReader(output, Encoding.UTF8).ReadToEnd();
+            
+            // Both comment and expanded entity should be in output
+            Assert.Contains("<!--comment-->", result);
+            Assert.Contains("EntityContent", result);
+        }
+
+        [Fact]
+        public void EntityReferenceInExclusiveCanonicalization()
+        {
+            // Test with Exclusive C14N transform
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY test ""ExclusiveTest"">
+]>
+<root xmlns=""http://example.com"">&test;</root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            XmlDsigExcC14NTransform transform = new XmlDsigExcC14NTransform();
+            transform.LoadInput(doc);
+            
+            Stream output = (Stream)transform.GetOutput();
+            string result = new StreamReader(output, Encoding.UTF8).ReadToEnd();
+            
+            // Entity should be expanded in canonical form
+            Assert.Contains("ExclusiveTest", result);
+            Assert.Contains("http://example.com", result);
+        }
+
+        [Fact]
+        public void EntityReferenceWithHash()
+        {
+            // Test the WriteHash code path by using GetDigestedOutput
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY test ""HashTest"">
+]>
+<root>&test;</root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            XmlDsigC14NTransform transform = new XmlDsigC14NTransform();
+            transform.LoadInput(doc);
+            
+            using (SHA256 hash = SHA256.Create())
+            {
+                byte[] digest = transform.GetDigestedOutput(hash);
+                
+                // Should produce a valid hash
+                Assert.NotNull(digest);
+                Assert.Equal(32, digest.Length); // SHA256 produces 32 bytes
+            }
+        }
+
+        [Fact]
+        public void MultipleEntityReferences()
+        {
+            // Test with multiple entity references
+            string xml = @"<!DOCTYPE doc [
+<!ENTITY ent1 ""First"">
+<!ENTITY ent2 ""Second"">
+]>
+<root>&ent1; and &ent2;</root>";
+
+            XmlDocument doc = new XmlDocument();
+            doc.PreserveWhitespace = true;
+            doc.LoadXml(xml);
+
+            XmlDsigC14NTransform transform = new XmlDsigC14NTransform();
+            transform.LoadInput(doc);
+            
+            Stream output = (Stream)transform.GetOutput();
+            string result = new StreamReader(output, Encoding.UTF8).ReadToEnd();
+            
+            // Both entities should be expanded
+            Assert.Contains("First", result);
+            Assert.Contains("Second", result);
+            Assert.Contains("and", result);
+        }
+    }
+}
diff --git a/src/libraries/System.Security.Cryptography.Xml/tests/System.Security.Cryptography.Xml.Tests.csproj b/src/libraries/System.Security.Cryptography.Xml/tests/System.Security.Cryptography.Xml.Tests.csproj
index e384759699b1e6..76da856a6bb170 100644
--- a/src/libraries/System.Security.Cryptography.Xml/tests/System.Security.Cryptography.Xml.Tests.csproj
+++ b/src/libraries/System.Security.Cryptography.Xml/tests/System.Security.Cryptography.Xml.Tests.csproj
@@ -10,6 +10,7 @@
     <Compile Include="$(CommonTestPath)System\Security\Cryptography\CngKeyWrapper.cs"
              Link="TestCommon\System\Security\Cryptography\CngKeyWrapper.cs" />
     <Compile Include="AssertCrypto.cs" />
+    <Compile Include="CanonicalXmlEntityReferenceTest.cs" />
     <Compile Include="CipherDataTests.cs" />
     <Compile Include="DataObjectTest.cs" />
     <Compile Include="DataObjectTests.cs" />