diff --git a/internal/cloud/backend_test.go b/internal/cloud/backend_test.go
index d3b5d7c5f2..0b0bb316a2 100644
--- a/internal/cloud/backend_test.go
+++ b/internal/cloud/backend_test.go
@@ -305,6 +305,58 @@ func TestCloud_configVerifyMinimumTFEVersion(t *testing.T) {
 	}
 }
 
+func TestCloud_setUnavailableTerraformVersion(t *testing.T) {
+	// go-tfe returns an error IRL if you try to set a Terraform version that's
+	// not available in your TFC instance. To test this, tfe_client_mock errors if
+	// you try to set any Terraform version for this specific workspace name.
+	workspaceName := "unavailable-terraform-version"
+
+	config := cty.ObjectVal(map[string]cty.Value{
+		"hostname":     cty.NullVal(cty.String),
+		"organization": cty.StringVal("hashicorp"),
+		"token":        cty.NullVal(cty.String),
+		"workspaces": cty.ObjectVal(map[string]cty.Value{
+			"name": cty.NullVal(cty.String),
+			"tags": cty.SetVal(
+				[]cty.Value{
+					cty.StringVal("sometag"),
+				},
+			),
+		}),
+	})
+
+	b, bCleanup := testBackend(t, config)
+	defer bCleanup()
+
+	// Make sure the workspace doesn't exist yet -- otherwise, we can't test what
+	// happens when a workspace gets created. This is why we can't use "name" in
+	// the backend config above, btw: if you do, testBackend() creates the default
+	// workspace before we get a chance to do anything.
+	_, err := b.client.Workspaces.Read(context.Background(), b.organization, workspaceName)
+	if err != tfe.ErrResourceNotFound {
+		t.Fatalf("the workspace we were about to try and create (%s/%s) already exists in the mocks somehow, so this test isn't trustworthy anymore", b.organization, workspaceName)
+	}
+
+	_, err = b.StateMgr(workspaceName)
+	if err != nil {
+		t.Fatalf("expected no error from StateMgr, despite not being able to set remote Terraform version: %#v", err)
+	}
+	// Make sure the workspace was created:
+	workspace, err := b.client.Workspaces.Read(context.Background(), b.organization, workspaceName)
+	if err != nil {
+		t.Fatalf("b.StateMgr() didn't actually create the desired workspace")
+	}
+	// Make sure our mocks still error as expected, using the same update function b.StateMgr() would call:
+	_, err = b.client.Workspaces.UpdateByID(
+		context.Background(),
+		workspace.ID,
+		tfe.WorkspaceUpdateOptions{TerraformVersion: tfe.String("1.1.0")},
+	)
+	if err == nil {
+		t.Fatalf("the mocks aren't emulating a nonexistent remote Terraform version correctly, so this test isn't trustworthy anymore")
+	}
+}
+
 func TestCloud_setConfigurationFields(t *testing.T) {
 	originalForceBackendEnv := os.Getenv("TF_FORCE_LOCAL_BACKEND")
 
diff --git a/internal/cloud/tfe_client_mock.go b/internal/cloud/tfe_client_mock.go
index 518602c3c8..8ba6883c3a 100644
--- a/internal/cloud/tfe_client_mock.go
+++ b/internal/cloud/tfe_client_mock.go
@@ -1159,6 +1159,10 @@ func (m *MockWorkspaces) List(ctx context.Context, organization string, options
 }
 
 func (m *MockWorkspaces) Create(ctx context.Context, organization string, options tfe.WorkspaceCreateOptions) (*tfe.Workspace, error) {
+	// for TestCloud_setUnavailableTerraformVersion
+	if *options.Name == "unavailable-terraform-version" && options.TerraformVersion != nil {
+		return nil, fmt.Errorf("requested Terraform version not available in this TFC instance")
+	}
 	if strings.HasSuffix(*options.Name, "no-operations") {
 		options.Operations = tfe.Bool(false)
 	} else if options.Operations == nil {
@@ -1234,17 +1238,9 @@ func (m *MockWorkspaces) Update(ctx context.Context, organization, workspace str
 		return nil, tfe.ErrResourceNotFound
 	}
 
-	if options.Operations != nil {
-		w.Operations = *options.Operations
-	}
-	if options.Name != nil {
-		w.Name = *options.Name
-	}
-	if options.TerraformVersion != nil {
-		w.TerraformVersion = *options.TerraformVersion
-	}
-	if options.WorkingDirectory != nil {
-		w.WorkingDirectory = *options.WorkingDirectory
+	err := updateMockWorkspaceAttributes(w, options)
+	if err != nil {
+		return nil, err
 	}
 
 	delete(m.workspaceNames, workspace)
@@ -1259,6 +1255,26 @@ func (m *MockWorkspaces) UpdateByID(ctx context.Context, workspaceID string, opt
 		return nil, tfe.ErrResourceNotFound
 	}
 
+	err := updateMockWorkspaceAttributes(w, options)
+	if err != nil {
+		return nil, err
+	}
+
+	delete(m.workspaceNames, w.Name)
+	m.workspaceNames[w.Name] = w
+
+	return w, nil
+}
+
+func updateMockWorkspaceAttributes(w *tfe.Workspace, options tfe.WorkspaceUpdateOptions) error {
+	// for TestCloud_setUnavailableTerraformVersion
+	if w.Name == "unavailable-terraform-version" && options.TerraformVersion != nil {
+		return fmt.Errorf("requested Terraform version not available in this TFC instance")
+	}
+
+	if options.Operations != nil {
+		w.Operations = *options.Operations
+	}
 	if options.Name != nil {
 		w.Name = *options.Name
 	}
@@ -1268,11 +1284,7 @@ func (m *MockWorkspaces) UpdateByID(ctx context.Context, workspaceID string, opt
 	if options.WorkingDirectory != nil {
 		w.WorkingDirectory = *options.WorkingDirectory
 	}
-
-	delete(m.workspaceNames, w.Name)
-	m.workspaceNames[w.Name] = w
-
-	return w, nil
+	return nil
 }
 
 func (m *MockWorkspaces) Delete(ctx context.Context, organization, workspace string) error {