In the present work, a mathematical model of predator–prey ecological interaction with infected prey is investigated. A saturation incidence function is used to model the behavioral change of the susceptible individuals when their number increases or due to the crowding effect of the infected individuals [V. Capasso, G. Serio, A generalization of the Kermack–McKendrick deterministic epidemic model, Math. Biosci. 42 (1978) 41–61]. Stability criteria for the infection-free and the endemic equilibria are deduced in terms of system parameters. The basic model is then modified to incorporate a time delay, describing a latency period. Stability and bifurcation analysis of the resulting delay differential equation model is carried out and ranges of the delay inducing stability and as well as instability for the system are found. Finally, a stability analysis of the bifurcating solutions is performed and the criteria for subcritical and supercritical Hopf bifurcation derived. The existence of a delay interval that preserves the stability of periodic orbits is demonstrated. The analysis emphasizes the importance of differential predation and a latency period in controlling disease dynamics.