An electronic device may be provided with a display. An optical component window may be formed in the inactive area of the display. The optical component window may transmit infrared light from an infrared light source. The infrared light source may include a diffuser to allow the light source to operate in a flood illumination mode and a structured light mode. The diffuser may include liquid crystal material between first and second substrates. A sealant may surround the liquid crystal layer, and one or more spacer walls may be located between the sealant and the liquid crystal layer. An additional spacer wall may be used outside of the sealant to prevent metal from creating an electrical short between electrodes in the diffuser. Conductive material in the sealant may be used to couple a top electrode to a metal pad on a bottom substrate.