diff --git a/modules/runtime_container_engine_config/database_config.tf b/modules/runtime_container_engine_config/database_config.tf
index 3ccba0c..d89c284 100644
--- a/modules/runtime_container_engine_config/database_config.tf
+++ b/modules/runtime_container_engine_config/database_config.tf
@@ -4,7 +4,7 @@
 locals {
   database = {
     TFE_DATABASE_USER                         = var.database_user
-    TFE_DATABASE_PASSWORD                     = var.database_password
+    TFE_DATABASE_PASSWORD                     = ""
     TFE_DATABASE_HOST                         = var.database_host
     TFE_DATABASE_NAME                         = var.database_name
     TFE_DATABASE_PARAMETERS                   = var.database_parameters
@@ -14,8 +14,12 @@ locals {
     TFE_DATABASE_CLIENT_KEY_FILE              = var.database_client_key_file
     TFE_DATABASE_PASSWORDLESS_AZURE_USE_MSI   = var.database_passwordless_azure_use_msi
     TFE_DATABASE_PASSWORDLESS_AZURE_CLIENT_ID = var.database_passwordless_azure_client_id
+    # AWS IAM authentication for PostgreSQL passwordless
+    TFE_DATABASE_PASSWORDLESS_AWS_USE_INSTANCE_PROFILE = var.database_passwordless_aws_use_iam
+    TFE_DATABASE_PASSWORDLESS_AWS_REGION               = var.database_passwordless_aws_region
   }
   database_configuration = local.disk ? {} : local.database
+
   explorer_database = {
     TFE_EXPLORER_DATABASE_HOST                         = var.explorer_database_host
     TFE_EXPLORER_DATABASE_NAME                         = var.explorer_database_name
diff --git a/modules/runtime_container_engine_config/variables.tf b/modules/runtime_container_engine_config/variables.tf
index 445afe5..c904b4c 100644
--- a/modules/runtime_container_engine_config/variables.tf
+++ b/modules/runtime_container_engine_config/variables.tf
@@ -106,6 +106,18 @@ variable "database_passwordless_azure_client_id" {
   description = "Azure Managed Service Identity (MSI) Client ID. If not set, System Assigned Managed Identity will be used."
 }
 
+variable "database_passwordless_aws_use_iam" {
+  default     = false
+  type        = bool
+  description = "Whether or not to use AWS IAM authentication to connect to the PostgreSQL database. Defaults to false if no value is given."
+}
+
+variable "database_passwordless_aws_region" {
+  default     = ""
+  type        = string
+  description = "AWS region for IAM database authentication. Required when database_passwordless_aws_use_iam is true."
+}
+
 variable "explorer_database_host" {
   type        = string
   default     = null
diff --git a/modules/tfe_init/main.tf b/modules/tfe_init/main.tf
index e0f6126..fc2af8b 100644
--- a/modules/tfe_init/main.tf
+++ b/modules/tfe_init/main.tf
@@ -100,7 +100,22 @@ locals {
       redis_bootstrap_key_pathname  = local.redis_bootstrap_key_pathname
       redis_bootstrap_ca_pathname   = local.redis_bootstrap_ca_pathname
 
+      # Database configuration for templates
+      Database = {
+        Passwordless = {
+          AWSUseInstanceProfile = var.database_passwordless_aws_use_iam
+          AWSRegion             = var.database_passwordless_aws_region
+        }
+      }
+
       database_azure_msi_auth_enabled = var.database_passwordless_azure_use_msi
+      database_aws_iam_auth_enabled   = var.database_passwordless_aws_use_iam
+      database_aws_iam_region         = var.database_passwordless_aws_region
+      database_host                   = var.database_host
+      database_name                   = var.database_name
+      admin_database_username         = var.admin_database_username
+      admin_database_password         = var.admin_database_password
+      database_iam_username           = var.database_iam_username
 
       proxy_ip   = var.proxy_ip
       proxy_port = var.proxy_port
diff --git a/modules/tfe_init/templates/aws.ubuntu.docker.tfe.sh.tpl b/modules/tfe_init/templates/aws.ubuntu.docker.tfe.sh.tpl
index 38bea0d..2aaa986 100644
--- a/modules/tfe_init/templates/aws.ubuntu.docker.tfe.sh.tpl
+++ b/modules/tfe_init/templates/aws.ubuntu.docker.tfe.sh.tpl
@@ -183,4 +183,21 @@ mkdir -p $tfe_dir
 
 echo ${docker_compose} | base64 -d > $tfe_dir/compose.yaml
 
+%{ if database_iam_username != null && database_iam_username != "" ~}
+echo "[$(date +"%FT%T")] Setting up PostgreSQL IAM user" | tee -a $log_pathname
+sudo apt-get update -qq && sudo apt-get install -y postgresql-client-16 >/dev/null 2>&1
+export PGPASSWORD="${admin_database_password}"
+for i in $(seq 1 20); do
+if psql -h "${database_host}" -U "${admin_database_username}" -d "${database_name}" -c "SELECT 1;" >/dev/null 2>&1; then
+echo "DB connected on attempt $i" | tee -a $log_pathname
+psql -h "${database_host}" -U "${admin_database_username}" -d "${database_name}" -c "DO \$\$ BEGIN IF NOT EXISTS (SELECT 1 FROM pg_roles WHERE rolname = '${database_iam_username}') THEN CREATE USER \"${database_iam_username}\" WITH LOGIN; GRANT rds_iam TO \"${database_iam_username}\"; GRANT CONNECT ON DATABASE \"${database_name}\" TO \"${database_iam_username}\"; GRANT USAGE, CREATE ON SCHEMA public TO \"${database_iam_username}\"; GRANT ALL ON ALL TABLES IN SCHEMA public TO \"${database_iam_username}\"; GRANT ALL ON ALL SEQUENCES IN SCHEMA public TO \"${database_iam_username}\"; ALTER DEFAULT PRIVILEGES IN SCHEMA public GRANT ALL ON TABLES TO \"${database_iam_username}\"; ALTER DEFAULT PRIVILEGES IN SCHEMA public GRANT ALL ON SEQUENCES TO \"${database_iam_username}\"; RAISE NOTICE 'IAM user created'; ELSE RAISE NOTICE 'IAM user exists'; END IF; END \$\$;" >/dev/null 2>&1
+echo "IAM user ${database_iam_username} ready" | tee -a $log_pathname
+break
+else
+echo "DB attempt $i/20 failed" | tee -a $log_pathname
+sleep 10
+fi
+done
+%{ endif ~}
+
 docker compose -f /etc/tfe/compose.yaml up -d
diff --git a/modules/tfe_init/templates/tfe.sh.tpl b/modules/tfe_init/templates/tfe.sh.tpl
index f7a4fbc..76f30cb 100644
--- a/modules/tfe_init/templates/tfe.sh.tpl
+++ b/modules/tfe_init/templates/tfe.sh.tpl
@@ -187,6 +187,95 @@ mkdir -p $tfe_dir
 
 echo ${docker_compose} | base64 -d > $tfe_dir/compose.yaml
 
+%{ if database_aws_iam_auth_enabled ~}
+echo "[$(date +"%FT%T")] [Terraform Enterprise] Setting up PostgreSQL IAM user" | tee -a $log_pathname
+
+# Set AWS region for CLI commands
+export AWS_DEFAULT_REGION="${database_aws_iam_region}"
+echo "[$(date +"%FT%T")] [Terraform Enterprise] AWS region set to: $AWS_DEFAULT_REGION" | tee -a $log_pathname
+
+# Install PostgreSQL client for database operations
+if command -v apt-get >/dev/null 2>&1; then
+    echo "[$(date +"%FT%T")] [Terraform Enterprise] Installing PostgreSQL client" | tee -a $log_pathname
+    apt-get update -qq
+    apt-get install -y postgresql-client-15 postgresql-client-common
+elif command -v yum >/dev/null 2>&1; then
+    echo "[$(date +"%FT%T")] [Terraform Enterprise] Installing PostgreSQL client" | tee -a $log_pathname
+    yum update -y
+    yum install -y postgresql15
+fi
+
+# Function to create PostgreSQL IAM user
+create_postgres_iam_user() {
+    local db_endpoint="${database_host}"
+    local admin_user="${admin_database_username}"
+    local admin_password="${admin_database_password}"
+    local iam_user="${database_iam_username}"
+    local db_name="${database_name}"
+    
+    echo "[$(date +"%FT%T")] [Terraform Enterprise] Creating PostgreSQL IAM user: $iam_user" | tee -a $log_pathname
+    
+    # Wait for database to be ready
+    echo "[$(date +"%FT%T")] [Terraform Enterprise] Waiting for PostgreSQL database to be ready..." | tee -a $log_pathname
+    max_attempts=30
+    attempt=0
+    
+    while [ $attempt -lt $max_attempts ]; do
+        if PGPASSWORD="$admin_password" psql -h "$db_endpoint" -U "$admin_user" -d "$db_name" -c 'SELECT 1;' >/dev/null 2>&1; then
+            echo "[$(date +"%FT%T")] [Terraform Enterprise] Database is ready!" | tee -a $log_pathname
+            break
+        fi
+        attempt=$((attempt + 1))
+        echo "[$(date +"%FT%T")] [Terraform Enterprise] Waiting for PostgreSQL... (attempt $attempt/$max_attempts)" | tee -a $log_pathname
+        sleep 10
+    done
+    
+    if [ $attempt -ge $max_attempts ]; then
+        echo "[$(date +"%FT%T")] [Terraform Enterprise] ERROR: Database not ready after $max_attempts attempts" | tee -a $log_pathname
+        return 1
+    fi
+    
+    # Create IAM user
+    echo "[$(date +"%FT%T")] [Terraform Enterprise] Creating IAM user in PostgreSQL..." | tee -a $log_pathname
+    PGPASSWORD="$admin_password" psql -h "$db_endpoint" -U "$admin_user" -d "$db_name" -v ON_ERROR_STOP=1 << EOF
+DO \$\$
+BEGIN
+    -- Check if user exists
+    IF NOT EXISTS (SELECT 1 FROM pg_roles WHERE rolname = '$iam_user') THEN
+        -- Create the IAM user
+        CREATE USER "$iam_user";
+        -- Grant rds_iam role (this role exists automatically in RDS PostgreSQL with IAM auth enabled)
+        GRANT rds_iam TO "$iam_user";
+        -- Grant necessary database permissions
+        GRANT CONNECT ON DATABASE "$db_name" TO "$iam_user";
+        GRANT USAGE ON SCHEMA public TO "$iam_user";
+        GRANT CREATE ON SCHEMA public TO "$iam_user";
+        -- Grant table permissions
+        GRANT ALL PRIVILEGES ON ALL TABLES IN SCHEMA public TO "$iam_user";
+        GRANT ALL PRIVILEGES ON ALL SEQUENCES IN SCHEMA public TO "$iam_user";
+        -- Grant default privileges for future objects
+        ALTER DEFAULT PRIVILEGES IN SCHEMA public GRANT ALL ON TABLES TO "$iam_user";
+        ALTER DEFAULT PRIVILEGES IN SCHEMA public GRANT ALL ON SEQUENCES TO "$iam_user";
+        RAISE NOTICE 'Successfully created IAM user: $iam_user';
+    ELSE
+        RAISE NOTICE 'IAM user already exists: $iam_user';
+    END IF;
+END
+\$\$;
+EOF
+    
+    if [ $? -eq 0 ]; then
+        echo "[$(date +"%FT%T")] [Terraform Enterprise] PostgreSQL IAM user setup completed successfully" | tee -a $log_pathname
+    else
+        echo "[$(date +"%FT%T")] [Terraform Enterprise] ERROR: Failed to create PostgreSQL IAM user" | tee -a $log_pathname
+        return 1
+    fi
+}
+
+# Create the IAM user before starting TFE
+create_postgres_iam_user
+%{ endif ~}
+
 docker compose -f /etc/tfe/compose.yaml up -d
 
 %{ if distribution == "rhel" && cloud != "google" ~}
diff --git a/modules/tfe_init/variables.tf b/modules/tfe_init/variables.tf
index 6c2918e..7435c2d 100644
--- a/modules/tfe_init/variables.tf
+++ b/modules/tfe_init/variables.tf
@@ -218,3 +218,21 @@ variable "database_passwordless_azure_use_msi" {
   type        = bool
   description = "Whether or not to use Azure Managed Service Identity (MSI) to connect to the PostgreSQL database. Defaults to false if no value is given."
 }
+
+variable "database_passwordless_aws_use_iam" {
+  default     = false
+  type        = bool
+  description = "Whether or not to use AWS IAM authentication to connect to the PostgreSQL database. Defaults to false if no value is given."
+}
+
+variable "database_passwordless_aws_region" {
+  default     = ""
+  type        = string
+  description = "AWS region for IAM database authentication. Required when database_passwordless_aws_use_iam is true."
+}
+
+variable "database_iam_username" {
+  default     = null
+  type        = string
+  description = "PostgreSQL IAM user for AWS IAM authentication."
+}