All messages sent on WhatsApp have end-to-end encryption, meaning they are unreadable if intercepted by anyone, including law enforcement and WhatsApp itself.
So while Masood's phone is believed to have connected with the app, police may not know what, if anything, was communicated.
Speaking to BBC One's Andrew Marr Show, Ms Rudd said: "It is completely unacceptable, there should be no place for terrorists to hide.
"We need to make sure that organisations like WhatsApp, and there are plenty of others like that, don't provide a secret place for terrorists to communicate with each other.
"It used to be that people would steam open envelopes or just listen in on phones when they wanted to find out what people were doing, legally, through warrantry.
"But on this situation we need to make sure that our intelligence services have the ability to get into situations like encrypted WhatsApp."
Labour leader Jeremy Corbyn said authorities already had "huge powers".
There had to be a balance between the "right to know" and "the right to privacy", he said.