diff --git a/cmd/diff/diff_test.go b/cmd/diff/diff_test.go
index a2c5c1f..f1aa5ad 100644
--- a/cmd/diff/diff_test.go
+++ b/cmd/diff/diff_test.go
@@ -996,8 +996,8 @@ func TestGetRestConfig(t *testing.T) {
 	}{
 		"EmptyKubeconfigEnvVar": {
 			kubeconfigPath: "",
-			expectError:    true, // Will error when no in-cluster config is available
-			errorContains:  "no configuration has been provided",
+			expectError:    true,
+			errorContains:  "KUBECONFIG environment variable is not set",
 		},
 		"ValidKubeconfigPath": {
 			setupFile: func() string {
diff --git a/cmd/diff/main.go b/cmd/diff/main.go
index a679b79..93996a6 100644
--- a/cmd/diff/main.go
+++ b/cmd/diff/main.go
@@ -25,6 +25,7 @@ import (
 	"k8s.io/client-go/tools/clientcmd"
 	"sigs.k8s.io/controller-runtime/pkg/log/zap"
 
+	"github.com/crossplane/crossplane-runtime/v2/pkg/errors"
 	"github.com/crossplane/crossplane-runtime/v2/pkg/logging"
 
 	"github.com/crossplane/crossplane/v2/cmd/crank/version"
@@ -79,5 +80,9 @@ func main() {
 }
 
 func getRestConfig() (*rest.Config, error) {
-	return clientcmd.BuildConfigFromFlags("", os.Getenv("KUBECONFIG"))
+	kubeconfig := os.Getenv("KUBECONFIG")
+	if kubeconfig == "" {
+		return nil, errors.New("KUBECONFIG environment variable is not set. Please set KUBECONFIG to point to your kubeconfig file")
+	}
+	return clientcmd.BuildConfigFromFlags("", kubeconfig)
 }