Diffusion Probabilistic models have been shown to generate state-of-the-art results on several competitive image synthesis benchmarks but lack a low-dimensional, interpretable latent space, and are slow at generation. On the other hand, Variational Autoencoders (VAEs) typically have access to a low-dimensional latent space but exhibit poor sample quality. Despite recent advances, VAEs usually require high-dimensional hierarchies of the latent codes to generate high-quality samples. We present DiffuseVAE, a novel generative framework that integrates VAE within a diffusion model framework, and leverage this to design a novel conditional parameterization for diffusion models. We show that the resulting model can improve upon the unconditional diffusion model in terms of sampling efficiency while also equipping diffusion models with the low-dimensional VAE inferred latent code. Furthermore, we show that the proposed model can generate high-resolution samples and exhibits synthesis quality comparable to state-of-the-art models on standard benchmarks. Lastly, we show that the proposed method can be used for controllable image synthesis and also exhibits out-of-the-box capabilities for downstream tasks like image super-resolution and denoising. For reproducibility, our source code is publicly available at \url{https://github.com/kpandey008/DiffuseVAE}.
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