diff --git a/azurerm/internal/services/compute/tests/linux_virtual_machine_scale_set_other_resource_test.go b/azurerm/internal/services/compute/tests/linux_virtual_machine_scale_set_other_resource_test.go
index dfb83bccb1ef..ba003fc2ba80 100644
--- a/azurerm/internal/services/compute/tests/linux_virtual_machine_scale_set_other_resource_test.go
+++ b/azurerm/internal/services/compute/tests/linux_virtual_machine_scale_set_other_resource_test.go
@@ -608,6 +608,25 @@ func TestAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensions(t *testing.T) {
 	})
 }
 
+func TestAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensionsOnlySettings(t *testing.T) {
+	data := acceptance.BuildTestData(t, "azurerm_linux_virtual_machine_scale_set", "test")
+
+	resource.ParallelTest(t, resource.TestCase{
+		PreCheck:     func() { acceptance.PreCheck(t) },
+		Providers:    acceptance.SupportedProviders,
+		CheckDestroy: testCheckAzureRMLinuxVirtualMachineScaleSetDestroy,
+		Steps: []resource.TestStep{
+			{
+				Config: testAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensionsOnlySettings(data),
+				Check: resource.ComposeTestCheckFunc(
+					testCheckAzureRMLinuxVirtualMachineScaleSetExists(data.ResourceName)),
+			},
+			// TODO - extension should be changed to extension.0.protected_settings when either binary testing is available or this feature is promoted from beta
+			data.ImportStep("admin_password", "extension"),
+		},
+	})
+}
+
 func TestAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensionsForceUpdateTag(t *testing.T) {
 	data := acceptance.BuildTestData(t, "azurerm_linux_virtual_machine_scale_set", "test")
 
@@ -2107,6 +2126,69 @@ resource "azurerm_linux_virtual_machine_scale_set" "test" {
 `, template, data.RandomInteger, enabled)
 }
 
+func testAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensionsOnlySettings(data acceptance.TestData) string {
+	template := testAccAzureRMLinuxVirtualMachineScaleSet_template(data)
+	return fmt.Sprintf(`
+%[1]s
+
+provider "azurerm" {
+  features {}
+}
+
+resource "azurerm_linux_virtual_machine_scale_set" "test" {
+  name                = "acctestvmss-%d"
+  resource_group_name = azurerm_resource_group.test.name
+  location            = azurerm_resource_group.test.location
+  sku                 = "Standard_F2"
+  instances           = 1
+  admin_username      = "adminuser"
+  admin_password      = "P@ssword1234!"
+
+  disable_password_authentication = false
+
+  source_image_reference {
+    publisher = "Canonical"
+    offer     = "UbuntuServer"
+    sku       = "16.04-LTS"
+    version   = "latest"
+  }
+
+  os_disk {
+    storage_account_type = "Standard_LRS"
+    caching              = "ReadWrite"
+  }
+
+  network_interface {
+    name    = "example"
+    primary = true
+
+    ip_configuration {
+      name      = "internal"
+      primary   = true
+      subnet_id = azurerm_subnet.test.id
+    }
+  }
+
+  extension {
+    name                       = "CustomScript"
+    publisher                  = "Microsoft.Azure.Extensions"
+    type                       = "CustomScript"
+    type_handler_version       = "2.0"
+    auto_upgrade_minor_version = true
+
+    settings = jsonencode({
+      "commandToExecute" = "echo $HOSTNAME"
+    })
+
+  }
+
+  tags = {
+    accTest = "true"
+  }
+}
+`, template, data.RandomInteger)
+}
+
 func testAccAzureRMLinuxVirtualMachineScaleSet_otherVmExtensions(data acceptance.TestData) string {
 	template := testAccAzureRMLinuxVirtualMachineScaleSet_template(data)
 	return fmt.Sprintf(`
diff --git a/azurerm/internal/services/compute/virtual_machine_scale_set.go b/azurerm/internal/services/compute/virtual_machine_scale_set.go
index 1aa8d3a8d2b9..cd8dca6e33b3 100644
--- a/azurerm/internal/services/compute/virtual_machine_scale_set.go
+++ b/azurerm/internal/services/compute/virtual_machine_scale_set.go
@@ -1392,19 +1392,24 @@ func expandVirtualMachineScaleSetExtensions(input []interface{}) (*compute.Virtu
 			extensionProps.ForceUpdateTag = utils.String(forceUpdateTag.(string))
 		}
 
-		settings, err := structure.ExpandJsonFromString(extensionRaw["settings"].(string))
-		if err != nil {
-			return nil, fmt.Errorf("failed to parse JSON from `settings`: %+v", err)
+		settings, ok := extensionRaw["settings"].(string)
+		if ok && settings != "" {
+			settings, err := structure.ExpandJsonFromString(settings)
+			if err != nil {
+				return nil, fmt.Errorf("failed to parse JSON from `settings`: %+v", err)
+			}
+			extensionProps.Settings = settings
 		}
-		extensionProps.Settings = settings
 
-		protectedSettings, err := structure.ExpandJsonFromString(extensionRaw["protected_settings"].(string))
-		if err != nil {
-			return nil, fmt.Errorf("failed to parse JSON from `settings`: %+v", err)
+		protectedSettings, ok := extensionRaw["protected_settings"].(string)
+		if ok && protectedSettings != "" {
+			protectedSettings, err := structure.ExpandJsonFromString(protectedSettings)
+			if err != nil {
+				return nil, fmt.Errorf("failed to parse JSON from `settings`: %+v", err)
+			}
+			extensionProps.ProtectedSettings = protectedSettings
 		}
 
-		extensionProps.ProtectedSettings = protectedSettings
-
 		extension.VirtualMachineScaleSetExtensionProperties = &extensionProps
 		extensions = append(extensions, extension)
 	}