The Metropolitan Police began the investigation after the Prince and a former close confidant, Michael Fawcett, were reported to officers by Republic, an anti-monarchy group.
Republic made a formal complaint to Met detectives after tabloid articles claimed a donor had offered funds to The Prince's Foundation in return for a Knighthood.
Republic also contacted Scotland Yard to report the Prince and Fawcett, who was once the Prince's valet, on suspicion of breaching the Honours (Prevention of Abuses) Act 1925.
Ex-Liberal Democrat MP Norman Baker also wrote to the Met asking the force to launch a criminal probe into the allegations made against the former royal confidant.
Clarence House said Prince Charles has "no knowledge" of such an agreement in response to the articles.
But the Met has now announced there was cause to launch an investigation into the alleged cash-for-honours scandal.
The alleged scandal surfaced in 2017 when the Mail on Sunday published a letter allegedly sent by Fawcett.
In the letter, Fawcett reportedly said he was willing to make an application to change businessman Mahfouz Marei Mubarak bin Mahfouz's honorary CBE to a knighthood and support his application for citizenship.
Following the articles, an independent investigation was conducted by The Prince's Foundation.
Evidence was found that showed Fawcett's "communications and co-ordination" with "so-called 'fixers' regarding honorary nominations for a donor between 2014-18".
Clarence House issued another statement following the most recent investigation by the Met, saying "the Prince of Wales had no knowledge of the alleged offer of honours or British citizenship on the basis of donation to his charities".
AAP with The Project.