diff --git a/tests/test_model_utils.py b/tests/test_model_utils.py
index 51354135af1..ce492a7ba12 100644
--- a/tests/test_model_utils.py
+++ b/tests/test_model_utils.py
@@ -19,7 +19,7 @@
 from transformers import AutoModelForCausalLM
 
 from trl.import_utils import is_deepspeed_available
-from trl.models.utils import disable_gradient_checkpointing, prepare_deepspeed
+from trl.models.utils import _unwrap_model_for_generation, disable_gradient_checkpointing, prepare_deepspeed
 
 
 @pytest.mark.skipif(not is_deepspeed_available(), reason="deepspeed is not installed")
@@ -73,3 +73,35 @@ def test_when_enabled(self):
         with disable_gradient_checkpointing(model):
             assert model.is_gradient_checkpointing is False
         assert model.is_gradient_checkpointing is True
+
+
+class TestUnwrapModelForGeneration:
+    def test_restores_gradient_checkpointing_on_error(self):
+        class DummyModel:
+            def __init__(self):
+                self.is_gradient_checkpointing = True
+                self.enable_calls = 0
+
+            def gradient_checkpointing_disable(self):
+                self.is_gradient_checkpointing = False
+
+            def gradient_checkpointing_enable(self):
+                self.is_gradient_checkpointing = True
+                self.enable_calls += 1
+
+        class FakeDistributedBackend:
+            def __init__(self, accelerator):
+                self.is_zero3 = False
+
+        unwrapped = DummyModel()
+        accelerator = types.SimpleNamespace(unwrap_model=lambda model: unwrapped)
+
+        with (
+            patch("trl.distributed.DistributedBackend", FakeDistributedBackend),
+            pytest.raises(RuntimeError, match="boom"),
+        ):
+            with _unwrap_model_for_generation(unwrapped, accelerator):
+                raise RuntimeError("boom")
+
+        assert unwrapped.enable_calls == 1
+        assert unwrapped.is_gradient_checkpointing is True
diff --git a/trl/models/utils.py b/trl/models/utils.py
index 2b1c510273c..07ba2b4e14c 100644
--- a/trl/models/utils.py
+++ b/trl/models/utils.py
@@ -130,20 +130,24 @@ def _unwrap_model_for_generation(
         unwrapped_model.gradient_checkpointing_disable()
     from ..distributed import DistributedBackend
 
-    if DistributedBackend(accelerator).is_zero3:
-        if not gather_deepspeed3_params:
-            yield accelerator.unwrap_model(model)
-        else:
-            import deepspeed
-
-            with deepspeed.zero.GatheredParameters(model.parameters()):
-                remove_hooks(model)
+    try:
+        if DistributedBackend(accelerator).is_zero3:
+            if not gather_deepspeed3_params:
                 yield accelerator.unwrap_model(model)
-                add_hooks(model)
-    else:
-        yield unwrapped_model
-    if is_gradient_checkpointing:
-        unwrapped_model.gradient_checkpointing_enable()
+            else:
+                import deepspeed
+
+                with deepspeed.zero.GatheredParameters(model.parameters()):
+                    remove_hooks(model)
+                    try:
+                        yield accelerator.unwrap_model(model)
+                    finally:
+                        add_hooks(model)
+        else:
+            yield unwrapped_model
+    finally:
+        if is_gradient_checkpointing:
+            unwrapped_model.gradient_checkpointing_enable()
 
 
 @contextmanager