diff --git a/CHANGELOG.md b/CHANGELOG.md
index fb789b06f..0c944ebfd 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,5 +1,9 @@
 ## Unreleased
 
+FEATURES: 
+
+* Update `vault_database_secret_backend_connection`to support `password_authentication` for PostgreSQL, allowing to encrypt password before being passed to PostgreSQL ([#2371](https://github.com/hashicorp/terraform-provider-vault/pull/2371))
+
 ## 4.5.0 (Nov 19, 2024)
 
 FEATURES:
diff --git a/vault/resource_database_secret_backend_connection.go b/vault/resource_database_secret_backend_connection.go
index 50bf82028..d394d5d54 100644
--- a/vault/resource_database_secret_backend_connection.go
+++ b/vault/resource_database_secret_backend_connection.go
@@ -836,6 +836,12 @@ func postgresConnectionStringResource() *schema.Resource {
 		Optional:    true,
 		Description: "If set, allows onboarding static roles with a rootless connection configuration.",
 	}
+	r.Schema["password_authentication"] = &schema.Schema{
+		Type:        schema.TypeString,
+		Optional:    true,
+		Default:     "password",
+		Description: "When set to `scram-sha-256`, passwords will be hashed by Vault before being sent to PostgreSQL.",
+	}
 
 	return r
 }
@@ -1150,6 +1156,12 @@ func getPostgresConnectionDetailsFromResponse(d *schema.ResourceData, prefix str
 		}
 	}
 
+	if provider.IsAPISupported(meta, provider.VaultVersion114) {
+		if v, ok := data["password_authentication"]; ok {
+			result["password_authentication"] = v.(string)
+		}
+	}
+
 	if provider.IsAPISupported(meta, provider.VaultVersion118) {
 		if v, ok := data["tls_ca"]; ok {
 			result["tls_ca"] = v.(string)
@@ -1571,6 +1583,12 @@ func setPostgresDatabaseConnectionData(d *schema.ResourceData, prefix string, da
 		}
 	}
 
+	if provider.IsAPISupported(meta, provider.VaultVersion114) {
+		if v, ok := d.GetOk(prefix + "password_authentication"); ok {
+			data["password_authentication"] = v.(string)
+		}
+	}
+
 	if provider.IsAPISupported(meta, provider.VaultVersion118) && provider.IsEnterpriseSupported(meta) {
 		if v, ok := d.GetOk(prefix + "self_managed"); ok {
 			data["self_managed"] = v.(bool)
diff --git a/vault/resource_database_secret_backend_connection_test.go b/vault/resource_database_secret_backend_connection_test.go
index 69e85fe17..104aec513 100644
--- a/vault/resource_database_secret_backend_connection_test.go
+++ b/vault/resource_database_secret_backend_connection_test.go
@@ -812,6 +812,7 @@ func TestAccDatabaseSecretBackendConnection_postgresql(t *testing.T) {
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "root_rotation_statements.0", "FOOBAR"),
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "verify_connection", "true"),
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.connection_url", connURL),
+					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.password_authentication", "password"),
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.max_open_connections", maxOpenConnections),
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.max_idle_connections", maxIdleConnections),
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.max_connection_lifetime", maxConnLifetime),
@@ -833,6 +834,12 @@ func TestAccDatabaseSecretBackendConnection_postgresql(t *testing.T) {
 					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.username_template", ""),
 				),
 			},
+			{
+				Config: testAccDatabaseSecretBackendConnectionConfig_postgresql_password_authentication(name, backend, parsedURL),
+				Check: testComposeCheckFuncCommonDatabaseSecretBackend(name, backend, pluginName,
+					resource.TestCheckResourceAttr(testDefaultDatabaseSecretBackendResource, "postgresql.0.password_authentication", "scram-sha-256"),
+				),
+			},
 		},
 	})
 }
@@ -1771,6 +1778,27 @@ resource "vault_database_secret_backend_connection" "test" {
 `, path, name, parsedURL.String())
 }
 
+func testAccDatabaseSecretBackendConnectionConfig_postgresql_password_authentication(name, path string, parsedURL *url.URL) string {
+	return fmt.Sprintf(`
+resource "vault_mount" "db" {
+  path = "%s"
+  type = "database"
+}
+
+resource "vault_database_secret_backend_connection" "test" {
+  backend = vault_mount.db.path
+  name = "%s"
+  allowed_roles = ["dev", "prod"]
+  root_rotation_statements = ["FOOBAR"]
+
+  postgresql {
+	  connection_url          = "%s"
+	  password_authentication = "scram-sha-256"
+  }
+}
+`, path, name, parsedURL.String())
+}
+
 func testAccDatabaseSecretBackendConnectionConfig_postgresql_tls(name, path, tlsCA, tlsCert, privateKey string) string {
 	return fmt.Sprintf(`
 resource "vault_mount" "db" {
@@ -1849,7 +1877,7 @@ resource "vault_database_secret_backend_connection" "test" {
   allowed_roles = ["dev", "prod"]
   root_rotation_statements = ["FOOBAR"]
 
-  snowflake { 
+  snowflake {
     connection_url = "%s"
     username = "%s"
     password = "%s"
diff --git a/website/docs/r/database_secret_backend_connection.md b/website/docs/r/database_secret_backend_connection.md
index fab521f1a..eaf6bccbd 100644
--- a/website/docs/r/database_secret_backend_connection.md
+++ b/website/docs/r/database_secret_backend_connection.md
@@ -124,7 +124,7 @@ Exactly one of the nested blocks of configuration options must be supplied.
 * `connect_timeout` - (Optional) The number of seconds to use as a connection
   timeout.
 
-* `skip_verification` - (Optional) Skip permissions checks when a connection to Cassandra is first created. 
+* `skip_verification` - (Optional) Skip permissions checks when a connection to Cassandra is first created.
   These checks ensure that Vault is able to create roles, but can be resource intensive in clusters with many roles.
 
 ### Couchbase Configuration Options
@@ -328,8 +328,8 @@ See the [Vault
 
 * `password` - (Optional) The root credential password used in the connection URL.
 
-* `self_managed` - (Optional)  If set, allows onboarding static roles with a rootless 
-  connection configuration. Mutually exclusive with `username` and `password`. 
+* `self_managed` - (Optional)  If set, allows onboarding static roles with a rootless
+  connection configuration. Mutually exclusive with `username` and `password`.
   If set, will force `verify_connection` to be false. Requires Vault 1.18+ Enterprise.
 
 * `tls_ca` - (Optional) The x509 CA file for validating the certificate
@@ -338,6 +338,10 @@ See the [Vault
 * `tls_certificate` - (Optional) The x509 client certificate for connecting to
   the database. Must be PEM encoded.
 
+* `password_authentication` - (Optional) When set to `scram-sha-256`, passwords will be
+  hashed by Vault before being sent to PostgreSQL. See the [Vault docs](https://www.vaultproject.io/api-docs/secret/databases/postgresql.html#sample-payload)
+  for an example. Requires Vault 1.14+.
+
 * `private_key` - (Optional) The secret key used for the x509 client
   certificate. Must be PEM encoded.