Diagnostic fracture injection tests (DFITs) have been widely studied and implemented in unconventional reservoirs to derive properties such as closure stress, pore pressure, and permeability. During a DFIT, a small volume of water is pumped into a formation to create a small-sized crack. Formation permeability is typically obtained by means of modeling fluid leakoff during the shut-in period. Early studies have assumed a constant fluid pressure boundary condition on the fracture walls or a constant leakoff rate into the formation. However, the results deduced based on these assumptions may introduce significant errors because the fluid pressure inside a fracture dissipates quickly as the fluid leaks off into the formation. In this study, we propose a material balance approach to obtain formation permeability using DFIT data. The proposed analysis takes into account fluid leakoff during both fracture propagation and well shut-in periods. To model fluid leakoff during fracture propagation, we adopt the superposition principle to decompose the problem into two separate problems; we then obtain the analytical solution. Two synthetic cases are presented to validate the proposed analysis. The results suggest that the proposed approach provides a good estimation of formation permeability. This approach has broad field application potential, as it can be used even when pressure data contains significant levels of noise. In addition, the solution is more accurate than those provided in available studies of formation permeability estimation using DFITs data, especially when formation permeability is not extremely tight.