diff --git a/src/peft/peft_model.py b/src/peft/peft_model.py
index a38e0750f2..df640fc4ed 100644
--- a/src/peft/peft_model.py
+++ b/src/peft/peft_model.py
@@ -647,6 +647,9 @@ def _setup_prompt_encoder(self, adapter_name: str):
         elif config.peft_type == PeftType.P_TUNING:
             prompt_encoder = PromptEncoder(config)
         elif config.peft_type == PeftType.PREFIX_TUNING:
+            # prefix tuning now uses Cache but that won't work with gradient checkpointing
+            if any(getattr(module, "gradient_checkpointing", False) for module in self.get_base_model().modules()):
+                raise ValueError("Prefix tuning does not work with gradient checkpointing.")
             prompt_encoder = PrefixEncoder(config)
         else:
             raise ValueError("Not supported")
diff --git a/tests/test_decoder_models.py b/tests/test_decoder_models.py
index 3ad373ac01..f8c9d2c65a 100644
--- a/tests/test_decoder_models.py
+++ b/tests/test_decoder_models.py
@@ -34,6 +34,7 @@
     LoraConfig,
     OFTConfig,
     PrefixTuningConfig,
+    PromptLearningConfig,
     PromptTuningConfig,
     PromptTuningInit,
     get_peft_model,
@@ -59,6 +60,17 @@
     "task_type": "CAUSAL_LM",
 }
 
+SMALL_GRID = {
+    "model_ids": [
+        "hf-internal-testing/tiny-random-gpt2",
+        "hf-internal-testing/tiny-random-OPTForCausalLM",
+        "hf-internal-testing/tiny-random-MistralForCausalLM",
+        "peft-internal-testing/tiny-dummy-qwen2",
+        "trl-internal-testing/tiny-random-LlamaForCausalLM",
+    ],
+    "task_type": "CAUSAL_LM",
+}
+
 
 def skip_adalora_and_gpt2(test_list):
     return [test for test in test_list if not (("GPT2LMHeadModel" in test[1]) and (test[2] == AdaLoraConfig))]
@@ -91,6 +103,10 @@ def skip_adalora_or_oft_or_hra_and_gpt2(test_list):
     ]
 
 
+def only_prompt_learning_filter(test_list):
+    return [test for test in test_list if issubclass(test[2], PromptLearningConfig)]
+
+
 class PeftDecoderModelTester(unittest.TestCase, PeftCommonTester):
     r"""
     Test if the PeftModel behaves as expected. This includes:
@@ -505,3 +521,50 @@ def process(samples):
                 data_collator=DataCollatorForLanguageModeling(tokenizer, mlm=False),
             )
             trainer.train()
+
+    @parameterized.expand(
+        PeftTestConfigManager.get_grid_parameters(SMALL_GRID, filter_params_func=only_prompt_learning_filter)
+    )
+    def test_prompt_learning_with_gradient_checkpointing(self, test_name, model_id, config_cls, config_kwargs):
+        # See issue 869
+        # Test prompt learning methods with gradient checkpointing in a semi realistic setting.
+        # Prefix tuning does not work if the model uses the new caching implementation. In that case, a helpful error
+        # should be raised.
+        peft_config = config_cls(
+            base_model_name_or_path=model_id,
+            **config_kwargs,
+        )
+        base_model = self.transformers_class.from_pretrained(model_id)
+        base_model.gradient_checkpointing_enable()
+
+        try:
+            model = get_peft_model(base_model, peft_config)
+        except ValueError as exc:
+            # Some methods will raise a helpful error. After this, exit the test, as training would fail.
+            assert config_cls == PrefixTuningConfig
+            assert "Prefix tuning does not work with gradient checkpointing" in str(exc)
+            return
+
+        tokenizer = AutoTokenizer.from_pretrained(model_id)
+        tokenizer.pad_token = tokenizer.eos_token
+
+        def process(samples):
+            tokenized = tokenizer(samples["quote"], truncation=True, max_length=128)
+            return tokenized
+
+        data = load_dataset("ybelkada/english_quotes_copy")
+        data = data.map(process, batched=True)
+
+        with tempfile.TemporaryDirectory() as tmp_dirname:
+            trainer = Trainer(
+                model=model,
+                train_dataset=data["train"],
+                args=TrainingArguments(
+                    num_train_epochs=1,
+                    max_steps=3,
+                    per_device_train_batch_size=4,
+                    output_dir=tmp_dirname,
+                ),
+                data_collator=DataCollatorForLanguageModeling(tokenizer, mlm=False),
+            )
+            trainer.train()
diff --git a/tests/testing_common.py b/tests/testing_common.py
index 954f79be5f..77dd529862 100644
--- a/tests/testing_common.py
+++ b/tests/testing_common.py
@@ -1109,7 +1109,7 @@ def _test_training_layer_indexing(self, model_id, config_cls, config_kwargs):
         assert nb_trainable < nb_trainable_all
 
     def _test_training_gradient_checkpointing(self, model_id, config_cls, config_kwargs):
-        if issubclass(config_cls, PromptLearningConfig):
+        if config_cls == PrefixTuningConfig:
             return pytest.skip(f"Test not applicable for {config_cls}")
 
         if (config_cls == AdaLoraConfig) and ("roberta" in model_id.lower()):
@@ -1143,7 +1143,9 @@ def _test_training_gradient_checkpointing(self, model_id, config_cls, config_kwa
         loss.backward()
 
         for n, param in model.named_parameters():
-            if model.prefix in n:
+            if "prompt_encoder." in n:  # prompt tuning methods
+                assert param.grad is not None
+            elif hasattr(model, "prefix") and (model.prefix in n):  # non-prompt tuning methods
                 assert param.grad is not None
             else:
                 assert param.grad is None