As Large Language Models (LLMs) become increasingly integrated into enterprise applications, optimizing response time and reducing operational costs have become critical priorities. One of the most effective techniques for achieving both is Prompt Caching. Instead of processing identical prompt segments repeatedly, prompt caching allows AI systems to reuse previously computed prompt representations, minimizing redundant computation. While tokenization converts text into tokens that the model understands, prompt caching goes a step further by reusing the processing of unchanged token sequences, resulting in faster inference, lower latency, and reduced API costs, especially in applications with repetitive system prompts or recurring contextual information. How Prompt Caching Works Think of prompt caching as a “memory shortcut” for AI models. Every prompt is first tokenized, but when the same prompt prefix appears again, the model doesn’t need to process those tokens from scratch. Instead, it retrieves the cached computation and only processes the new or modified portion of the prompt.