Can not make encrypted disk images

I’ve seen this when Disk Utility silently fails at the APFS + encryption handoff, especially if you’re creating the image on an external drive or a volume with non-default permissions.

To confirm this try creating the encrypted image via Terminal instead of Disk Utility (hdiutil create -encryption -fs APFS -size 1g test.dmg). If that works, it’s a Disk Utility UI bug, not your system or keychain. If it fails there too, check Console for diskimages-helper or hdiutil errors, on recent macOS builds I’ve seen failures tied to corrupted local keychain entries or FileVault state drift after updates. Logging out and back in doesn’t help, but temporarily disabling FileVault, rebooting, then re-enabling it has fixed this in real-world cases.

So, yes, this looks like a Tahoe issue, and using hdiutil is the most reliable workaround until Apple patches Disk Utility.

What error message(s)?

Create a disk image using Disk Utility on Mac - Apple Support