ERROR: CREATE DATABASE cannot run inside a transaction block (SQLSTATE 25001) means the statement was sent after a BEGIN, and PostgreSQL does not allow it there. Run it on its own, outside any transaction. VACUUM gives the same error with its own name in the message.

In a script, move the statement before BEGIN or after COMMIT. In a tool or library that wraps everything in a transaction, turn that off for this one statement.

The error

BEGIN;
BEGIN
CREATE DATABASE shop_test;
psql:/tmp/q6.sql:3: ERROR:  CREATE DATABASE cannot run inside a transaction block

And VACUUM, in the same situation:

BEGIN;
BEGIN
VACUUM;
psql:/tmp/q6.sql:7: ERROR:  VACUUM cannot run inside a transaction block

Why it happens

Most PostgreSQL commands, table DDL included, can run inside a transaction and be rolled back (a DROP TABLE inside BEGIN rolled back cleanly in the same container). A few commands refuse. CREATE DATABASE and VACUUM are two of them: both checked for an open transaction and stopped with code 25001 before doing anything.

The BEGIN is not always yours. A tool that wraps a whole script in one transaction causes the same error even though the file never says BEGIN. psql does exactly that with --single-transaction: a file containing only CREATE DATABASE shop_test; failed with the same message when run that way.

The fix

CREATE DATABASE shop_test;
CREATE DATABASE
SELECT datname FROM pg_database WHERE datname = 'shop_test';
  datname
-----------
 shop_test
(1 row)

Outside the transaction the same statement succeeded at once. After the failed attempt inside BEGIN, the transaction was aborted and needed a ROLLBACK, which is why the script ends each failing block with one. If a setup script must create a database and then tables in it, split it in two: create the database first, then connect to it and run the rest, transaction and all. From .NET, Npgsql reports this as a PostgresException with SqlState 25001.

How it was reproduced

A postgres:18 container (PostgreSQL 18.4, Debian build 18.4-1.pgdg13+1) on Docker 29.9.2. A psql script opened a transaction with BEGIN and tried CREATE DATABASE shop_test, rolled back, did the same with VACUUM, then created the database outside any transaction and dropped it again. A verbose run printed ERROR: 25001 for both statements.

Frequently asked

How do I fix 'CREATE DATABASE cannot run inside a transaction block'?
Run CREATE DATABASE on its own, not after BEGIN. If a migration tool or client wraps your script in a transaction, run this statement separately without that wrapper.
Why does VACUUM say cannot run inside a transaction block?
VACUUM is one of the PostgreSQL commands that refuse to run inside a transaction. Run it as a standalone statement with autocommit, outside BEGIN and COMMIT.
Can I create a database and its tables in one script?
Not in one transaction. Create the database first as a separate statement, then connect to the new database and create the tables, inside a transaction if you like.

More decoded errors in the Fixes category. If the database exists and cannot be dropped, see database is being accessed by other users (55006).