Diminished reality (DR) refers to the concept of removing content from a user's visual environment. While its implementation is becoming feasible, it is still unclear how users perceive and interact in DR-enabled environments and what applications it benefits. To address this challenge, we first conduct a formative study to compare user perceptions of DR and mediated reality effects (e. g., changing the color or size of target elements) in four example scenarios. Participants preferred removing objects through opacity reduction (i. e., the standard DR implementation) and appreciated mechanisms for maintaining a contextual understanding of diminished items (e. g., outlining). In a second study, we explore the user experience of performing tasks within DR-enabled environments. Participants selected which objects to diminish and the magnitude of the effects when performing two separate tasks (video viewing, assembly). Participants were comfortable with decreased contextual understanding, particularly for less mobile tasks. Based on the results, we define guidelines for creating general DR-enabled environments.