An electronic device may have a reflective display with a pixel array that generates images. The reflective display may be illuminated by an illumination system. Light from the illumination system may be reflected by the pixel array as image light. The image light may be provided to a viewer using a waveguide with diffractive input and output couplers. The illumination system may have a waveguide. The illumination system may also have a light source such as one or more light-emitting diodes. Light from the light source may be coupled into the waveguide of the illumination system by a diffractive coupler such as volume hologram that serves as an input coupler. Light from the light source may be routed to the display to illuminate the display using the waveguide in the illumination system and a diffractive coupler such as a volume hologram that serves as an output coupler.