diff --git a/src/systems/problem_utils.jl b/src/systems/problem_utils.jl
index e24f37331f..f785de798f 100644
--- a/src/systems/problem_utils.jl
+++ b/src/systems/problem_utils.jl
@@ -1309,7 +1309,7 @@ function process_SciMLProblem(
 
     check_inputmap_keys(sys, op)
 
-    defs = add_toterms(recursive_unwrap(defaults(sys)))
+    defs = add_toterms(recursive_unwrap(defaults(sys)); replace = is_discrete_system(sys))
     kwargs = NamedTuple(kwargs)
 
     if eltype(eqs) <: Equation
diff --git a/test/discrete_system.jl b/test/discrete_system.jl
index d3db4df5f2..ccd5b2c0a9 100644
--- a/test/discrete_system.jl
+++ b/test/discrete_system.jl
@@ -274,3 +274,21 @@ end
     sol = solve(prob, FunctionMap())
     @test sol[[x..., y...], end] == 8ones(4)
 end
+
+@testset "Defaults are totermed appropriately" begin
+    @parameters σ ρ β q
+    @variables x(t) y(t) z(t)
+    k = ShiftIndex(t)
+    p = [σ => 28.0,
+        ρ => 10.0,
+        β => 8 / 3]
+
+    @mtkcompile discsys = System(
+        [x ~ x(k - 1) * ρ + y(k - 2), y ~ y(k - 1) * σ - z(k - 2),
+            z ~ z(k - 1) * β + x(k - 2)],
+        t; defaults = [x => 1.0, y => 1.0, z => 1.0, x(k - 1) => 1.0,
+            y(k - 1) => 1.0, z(k - 1) => 1.0])
+    discprob = DiscreteProblem(discsys, p, (0, 10))
+    sol = solve(discprob, FunctionMap())
+    @test SciMLBase.successful_retcode(sol)
+end