Terminal Error: There was an error creating the child process for this terminal. Failed to open PTY: Permission denied

For me, running the following command fixed the terminal:

sudo chmod 666 /dev/pts/ptmx

I had a similar problem, but I was suspicious that Docker was the culprit.

I rebooted my machine, and once at login, I hit Ctrl+Alt+F3 to switch to a console. I then stopped all running containers, removed all containers, removed all images, and rebooted.

The terminal started working again afterward, though I'm still getting weird crash reports for Xorg.

This is a top hit on search for this issue so putting in my experience.

In my case this issue just came up out of the blue. Per the other answers one can change the mode on the ptmx file to 666 and fix the issue until reboot. One can also add a mount command to fstab but be sure to include ,ptmxmode=666. That fixes the persistence. But why did this happen. I've NEVER had to add such a mount to my fstab. The other post above by @dwbailey was the clue. Turns out a running docker container (poorly formed I suppose) can mess with the ptsfs.

https://github.com/moby/moby/issues/19464

Just before this issue occured for me I had started a container with docker-compose to evaluate a project. That container was restarting at boot which explains why rebooting did not clear this issue, but once I brought it down this issue went away.

So tip is, if you recently started a container and this issue "just appeared out of no where" then it's most likely that container.