diff --git a/test/xds/xds_client_ack_nack_test.go b/test/xds/xds_client_ack_nack_test.go
index ca0ec56e2..ca954f8a3 100644
--- a/test/xds/xds_client_ack_nack_test.go
+++ b/test/xds/xds_client_ack_nack_test.go
@@ -39,14 +39,15 @@ import (
 // xDS flow on the client.
 const wantResources = 4
 
-// seenAllACKs returns true if we have seen two streams with acks for all the
-// resources that we are interested in.
-func seenAllACKs(acks map[int64]map[string]string) bool {
-	if len(acks) != 2 {
+// seenAllACKs returns true if the provided ackVersions map contains valid acks
+// for all the resources that we are interested in. If `wantNonEmpty` is true,
+// only non-empty ack versions are considered valid.
+func seenAllACKs(acksVersions map[string]string, wantNonEmpty bool) bool {
+	if len(acksVersions) != wantResources {
 		return false
 	}
-	for _, v := range acks {
-		if len(v) != wantResources {
+	for _, ack := range acksVersions {
+		if wantNonEmpty && ack == "" {
 			return false
 		}
 	}
@@ -65,8 +66,19 @@ func (s) TestClientResourceVersionAfterStreamRestart(t *testing.T) {
 	}
 	lis := testutils.NewRestartableListener(l)
 
-	streamClosed := grpcsync.NewEvent() // Event to notify stream closure.
-	acksReceived := grpcsync.NewEvent() // Event to notify receipt of acks for all resources.
+	// We depend on the fact that the management server assigns monotonically
+	// increasing stream IDs starting at 1.
+	const (
+		idBeforeRestart = 1
+		idAfterRestart  = 2
+	)
+
+	// Events of importance in the test, in the order in which they are expected
+	// to happen.
+	acksReceivedBeforeRestart := grpcsync.NewEvent()
+	streamRestarted := grpcsync.NewEvent()
+	acksReceivedAfterRestart := grpcsync.NewEvent()
+
 	// Map from stream id to a map of resource type to resource version.
 	ackVersionsMap := make(map[int64]map[string]string)
 	managementServer, nodeID, _, resolver, cleanup1 := e2e.SetupManagementServer(t, &e2e.ManagementServerOptions{
@@ -78,7 +90,7 @@ func (s) TestClientResourceVersionAfterStreamRestart(t *testing.T) {
 			// - Request contains no resource names. Such requests are usually
 			//   seen when the xdsclient is shutting down and is no longer
 			//   interested in the resources that it had subscribed to earlier.
-			if acksReceived.HasFired() || len(req.GetResourceNames()) == 0 {
+			if acksReceivedAfterRestart.HasFired() || len(req.GetResourceNames()) == 0 {
 				return nil
 			}
 			// Create a stream specific map to store ack versions if this is the
@@ -87,13 +99,25 @@ func (s) TestClientResourceVersionAfterStreamRestart(t *testing.T) {
 				ackVersionsMap[id] = make(map[string]string)
 			}
 			ackVersionsMap[id][req.GetTypeUrl()] = req.GetVersionInfo()
-			if seenAllACKs(ackVersionsMap) {
-				acksReceived.Fire()
+			// Prior to stream restart, we are interested only in non-empty
+			// resource versions. The xdsclient first sends out requests with an
+			// empty version string. After receipt of requested resource, it
+			// sends out another request for the same resource, but this time
+			// with a non-empty version string, to serve as an ACK.
+			if seenAllACKs(ackVersionsMap[idBeforeRestart], true) {
+				acksReceivedBeforeRestart.Fire()
+			}
+			// After stream restart, we expect the xdsclient to send out
+			// requests with version string set to the previously ACKed
+			// versions. If it sends out requests with empty version string, it
+			// is a bug and we want this test to catch it.
+			if seenAllACKs(ackVersionsMap[idAfterRestart], false) {
+				acksReceivedAfterRestart.Fire()
 			}
 			return nil
 		},
 		OnStreamClosed: func(int64) {
-			streamClosed.Fire()
+			streamRestarted.Fire()
 		},
 	})
 	defer cleanup1()
@@ -127,30 +151,34 @@ func (s) TestClientResourceVersionAfterStreamRestart(t *testing.T) {
 		t.Fatalf("rpc EmptyCall() failed: %v", err)
 	}
 
-	// A successful RPC means that we have captured the ack versions for all
-	// resources in the OnStreamRequest callback. Nothing more needs to be done
-	// here before stream restart.
+	// A successful RPC means that the xdsclient received all requested
+	// resources. The ACKs from the xdsclient may get a little delayed. So, we
+	// need to wait for all ACKs to be received on the management server before
+	// restarting the stream.
+	select {
+	case <-ctx.Done():
+		t.Fatal("Timeout when waiting for all resources to be ACKed prior to stream restart")
+	case <-acksReceivedBeforeRestart.Done():
+	}
 
 	// Stop the listener on the management server. This will cause the client to
 	// backoff and recreate the stream.
 	lis.Stop()
 
 	// Wait for the stream to be closed on the server.
-	<-streamClosed.Done()
+	<-streamRestarted.Done()
 
 	// Restart the listener on the management server to be able to accept
 	// reconnect attempts from the client.
 	lis.Restart()
 
 	// Wait for all the previously sent resources to be re-requested.
-	<-acksReceived.Done()
+	select {
+	case <-ctx.Done():
+		t.Fatal("Timeout when waiting for all resources to be ACKed post stream restart")
+	case <-acksReceivedAfterRestart.Done():
+	}
 
-	// We depend on the fact that the management server assigns monotonically
-	// increasing stream IDs starting at 1.
-	const (
-		idBeforeRestart = 1
-		idAfterRestart  = 2
-	)
 	if diff := cmp.Diff(ackVersionsMap[idBeforeRestart], ackVersionsMap[idAfterRestart]); diff != "" {
 		t.Fatalf("unexpected diff in ack versions before and after stream restart (-want, +got):\n%s", diff)
 	}