To defuse something is to make a threatening or dangerous situation safer. For example, you might defuse a bomb. Diffuse works as both a verb and an adjective. To diffuse something is to disperse it or spread it out. When something is dispersed or spread out, it is diffuse.
Examples
These writers use defuse correctly:
If someone started a fight, he was the one who would defuse the situation . . . [The World Link]
Alice Springs police were called to an Indigenous camp yesterday to defuse threats of a violent riot. [ICNN]
Used properly, defuse is always a transitive verb (meaning it must have an object).
The adjective sense of diffuse is more common than the verb. These writers use it well:
The benefits of globalisation have been diffuse while its downsides have largely been isolated. [The National]
It is about 1.5 times as wide as Jupiter, but only about a tenth as dense, making it one of the most diffuse planets yet found. [New Scientist]
But the verb usage appears occasionally:
We’ll look at ideas to diffuse the sound or bounce it away . . . [Brooklyn Paper]
There is nothing here to diffuse the focus: it’s on Porsches, everywhere, all the time. [NY Times]
Confusion of defuse and diffuse is so common that we actually had difficulty finding examples of diffuse used correctly. Here are just a few problematic examples we found:
It’s difficult to diffuse this much dynamite . . . [Times Leader]
Police negotiated with Finnegan in an attempt to diffuse the situation . . . [Cape Cod Online]
Attempts to diffuse the bomb failed . . . [The Epoch Times]
Further complicating matters, defuse and diffuse are in some senses very close in meaning, particularly when diffuse is used to mean soften by spreading out. Writers often use diffuse to mean soften, even when by spreading out doesn’t apply. That’s why it’s best to use the verb diffuse only for its literal meaning, and to use defuse whenever it would fit.