diff --git a/notebook/notebookapp.py b/notebook/notebookapp.py
index e1db9d879ef..c2066e40af0 100755
--- a/notebook/notebookapp.py
+++ b/notebook/notebookapp.py
@@ -213,6 +213,8 @@ def init_settings(self, jupyter_app, kernel_manager, contents_manager,
         
         root_dir = contents_manager.root_dir
         home = os.path.expanduser('~')
+        if sys.version_info.major == 2:
+            home = home.decode(sys.getfilesystemencoding())
         if root_dir.startswith(home + os.path.sep):
             # collapse $HOME to ~
             root_dir = '~' + root_dir[len(home):]