Continuous wavefront sensing on future space telescopes allows relaxation of stability requirements while still allowing on-orbit diffraction-limited o ptical p erformance. We c onsider t he s uitability o f p hase r etrieval t o continuously reconstruct the phase of a wavefront from on-orbit irradiance measurements or point spread function (PSF) images. As phase retrieval algorithms do not require reference optics or complicated calibrations, it is a preferable technique for space observatories, such as the Hubble Space Telescope or the James Webb Space Telescope. To increase the robustness and dynamic range of the phase retrieval algorithm, multiple PSF images with known amount of defocus can be utilized. In this study, we describe a recently constructed testbed including a 97 actuator deformable mirror, changeable entrance pupil stops, and a light source. The aligned system wavefront error is below ≈ 30 nm. We applied various methods to generate a known wavefront error, such as defocus and/or other aberrations, and found the accuracy and precision of the root mean squared error of the reconstructed wavefronts to be less than ≈ 10 nm and ≈ 2 nm, respectively. Further, we discuss the signal-to-noise ratios required for continuous dynamic wavefront sensing. We also simulate the case of spacecraft drifting and verify the performance of the phase retrieval algorithm for continuous wavefront sensing in the presence of realistic disturbances.