diff --git a/notebook/notebookapp.py b/notebook/notebookapp.py
index 20be704b63..56ec6deba0 100755
--- a/notebook/notebookapp.py
+++ b/notebook/notebookapp.py
@@ -213,7 +213,7 @@ def init_settings(self, jupyter_app, kernel_manager, contents_manager,
         now = utcnow()
         
         root_dir = contents_manager.root_dir
-        home = os.path.expanduser('~')
+        home = py3compat.str_to_unicode(os.path.expanduser('~'), encoding=sys.getfilesystemencoding()) 
         if root_dir.startswith(home + os.path.sep):
             # collapse $HOME to ~
             root_dir = '~' + root_dir[len(home):]