diff --git a/awx/main/fields.py b/awx/main/fields.py
index e4ec5ede2b09..a1900294fa54 100644
--- a/awx/main/fields.py
+++ b/awx/main/fields.py
@@ -637,6 +637,14 @@ def validate(self, value, model_instance):
             else:
                 decrypted_values[k] = v
 
+        # don't allow secrets with $encrypted$ on new object creation
+        if not model_instance.pk:
+            for field in model_instance.credential_type.secret_fields:
+                if value.get(field) == '$encrypted$':
+                    raise serializers.ValidationError({
+                        self.name: [f'$encrypted$ is a reserved keyword, and cannot be used for {field}.']
+                    })
+
         super(JSONSchemaField, self).validate(decrypted_values, model_instance)
         errors = {}
         for error in Draft4Validator(
diff --git a/awx/main/tests/functional/api/test_credential.py b/awx/main/tests/functional/api/test_credential.py
index d023ef5e4b7f..9a534a88976b 100644
--- a/awx/main/tests/functional/api/test_credential.py
+++ b/awx/main/tests/functional/api/test_credential.py
@@ -1153,6 +1153,22 @@ def _change_credential_type():
     assert response.status_code == 200
 
 
+@pytest.mark.django_db
+@pytest.mark.parametrize('field', ['password', 'ssh_key_data'])
+def test_secret_fields_cannot_be_special_encrypted_variable(post, organization, admin, credentialtype_ssh, field):
+    params = {
+        'name': 'Best credential ever',
+        'credential_type': credentialtype_ssh.id,
+        'inputs': {
+            'username': 'joe',
+            field: '$encrypted$',
+        },
+        'organization': organization.id,
+    }
+    response = post(reverse('api:credential_list'), params, admin, status=400)
+    assert str(response.data['inputs'][0]) == f'$encrypted$ is a reserved keyword, and cannot be used for {field}.'
+
+
 @pytest.mark.django_db
 def test_ssh_unlock_needed(put, organization, admin, credentialtype_ssh):
     params = {