diff --git a/mod/lti/classes/external/toggle_showinactivitychooser.php b/mod/lti/classes/external/toggle_showinactivitychooser.php
index 5c44241615d..99c3b24e60f 100644
--- a/mod/lti/classes/external/toggle_showinactivitychooser.php
+++ b/mod/lti/classes/external/toggle_showinactivitychooser.php
@@ -88,6 +88,18 @@ class toggle_showinactivitychooser extends external_api {
             // It is course tool - just update it.
             lti_update_type($ltitype, $config);
         } else {
+            $coursecategory = $DB->get_field('course', 'category', ['id' => $courseid]);
+            $sql = "SELECT COUNT(*) AS count
+                      FROM {lti_types_categories} tc
+                     WHERE tc.typeid = :typeid";
+            $restrictedtool = $DB->get_record_sql($sql, ['typeid' => $tooltypeid]);
+            if ($restrictedtool->count) {
+                $record = $DB->get_record('lti_types_categories', ['typeid' => $tooltypeid, 'categoryid' => $coursecategory]);
+                if (!$record) {
+                    throw new \moodle_exception('You are not allowed to change this setting for this tool.');
+                }
+            }
+
             // This is site tool, but we would like to have course level setting for it.
             $lticoursevisible = $DB->get_record('lti_coursevisible', ['typeid' => $tooltypeid, 'courseid' => $courseid]);
             if (!$lticoursevisible) {
diff --git a/mod/lti/tests/external/toggle_showinactivitychooser_test.php b/mod/lti/tests/external/toggle_showinactivitychooser_test.php
index 650c82c555f..e4ef2ef1d4c 100644
--- a/mod/lti/tests/external/toggle_showinactivitychooser_test.php
+++ b/mod/lti/tests/external/toggle_showinactivitychooser_test.php
@@ -82,7 +82,10 @@ class toggle_showinactivitychooser_test extends \mod_lti_testcase {
 
         $this->resetAfterTest();
 
-        $course = $this->getDataGenerator()->create_course();
+        $coursecat1 = $this->getDataGenerator()->create_category();
+        $coursecat2 = $this->getDataGenerator()->create_category();
+        $course = $this->getDataGenerator()->create_course(['category' => $coursecat1->id]);
+
         $editingteacher = $this->getDataGenerator()->create_and_enrol($course, 'editingteacher');
         $this->setUser($editingteacher);
 
@@ -106,6 +109,34 @@ class toggle_showinactivitychooser_test extends \mod_lti_testcase {
         $this->assertEquals(LTI_COURSEVISIBLE_ACTIVITYCHOOSER, $actual->coursevisible1);
         $this->assertEquals(LTI_COURSEVISIBLE_ACTIVITYCHOOSER, $actual->coursevisible2);
         $this->assertEquals(LTI_COURSEVISIBLE_ACTIVITYCHOOSER, $actual->coursevisible3);
+
+        $ltigenerator = $this->getDataGenerator()->get_plugin_generator('mod_lti');
+        $ltigenerator->create_tool_types([
+            'name' => 'site tool preconfigured and activity chooser, restricted to category 1',
+            'baseurl' => 'http://example.com/tool/1',
+            'coursevisible' => LTI_COURSEVISIBLE_ACTIVITYCHOOSER,
+            'state' => LTI_TOOL_STATE_CONFIGURED,
+            'lti_coursecategories' => $coursecat1->id
+        ]);
+        $tool = $DB->get_record('lti_types', ['name' => 'site tool preconfigured and activity chooser, restricted to category 1']);
+        toggle_showinactivitychooser::execute($tool->id, $course->id, false);
+        $actual = $DB->get_record_sql($sql, [$tool->id, $course->id]);
+        $this->assertEquals(LTI_COURSEVISIBLE_ACTIVITYCHOOSER, $actual->coursevisible1);
+        $this->assertEquals(LTI_COURSEVISIBLE_ACTIVITYCHOOSER, $actual->coursevisible2);
+        $this->assertEquals(LTI_COURSEVISIBLE_PRECONFIGURED, $actual->coursevisible3);
+
+        $ltigenerator = $this->getDataGenerator()->get_plugin_generator('mod_lti');
+        $ltigenerator->create_tool_types([
+            'name' => 'site tool preconfigured and activity chooser, restricted to category 2',
+            'baseurl' => 'http://example.com/tool/1',
+            'coursevisible' => LTI_COURSEVISIBLE_ACTIVITYCHOOSER,
+            'state' => LTI_TOOL_STATE_CONFIGURED,
+            'lti_coursecategories' => $coursecat2->id
+        ]);
+        $tool = $DB->get_record('lti_types', ['name' => 'site tool preconfigured and activity chooser, restricted to category 2']);
+        $this->expectException('moodle_exception');
+        $this->expectExceptionMessage('You are not allowed to change this setting for this tool.');
+        toggle_showinactivitychooser::execute($tool->id, $course->id, true);
     }
 
 }
diff --git a/mod/lti/tests/generator/lib.php b/mod/lti/tests/generator/lib.php
index d4032b67588..783c1d02db3 100644
--- a/mod/lti/tests/generator/lib.php
+++ b/mod/lti/tests/generator/lib.php
@@ -108,6 +108,10 @@ class mod_lti_generator extends testing_module_generator {
             ARRAY_FILTER_USE_BOTH
         );
         $config = array_diff_key($data, $type);
+        // This is ugly - we store it in two places.
+        if (isset($data['coursevisible'])) {
+            $config['lti_coursevisible'] = $data['coursevisible'];
+        }
 
         return ['type' => (object) $type, 'config' => (object) $config];
     }