diff --git a/src/client/common/utils.ts b/src/client/common/utils.ts
index bb3c0a2dd4bc..bd3fd3be17d1 100644
--- a/src/client/common/utils.ts
+++ b/src/client/common/utils.ts
@@ -117,7 +117,7 @@ export function execPythonFile(file: string, args: string[], cwd: string, includ
     // Cuz python interpreter is always a file and we can and will always run it using child_process.execFile()
     if (file === settings.PythonSettings.getInstance().pythonPath) {
         if (stdOut) {
-            return spawnFileInternal(file, args, { cwd }, includeErrorAsResponse, stdOut, token);
+            return spawnFileInternal(file, args, { cwd, env: customEnvVariables }, includeErrorAsResponse, stdOut, token);
         }
         if (execAsModule) {
             return getFullyQualifiedPythonInterpreterPath()
@@ -252,6 +252,8 @@ function execFileInternal(file: string, args: string[], options: child_process.E
 }
 function spawnFileInternal(file: string, args: string[], options: child_process.ExecFileOptions, includeErrorAsResponse: boolean, stdOut: (line: string) => void, token?: CancellationToken): Promise<string> {
     return new Promise<string>((resolve, reject) => {
+        options.env = options.env || {};
+        options.env['PYTHONIOENCODING'] = 'UTF-8';
         let proc = child_process.spawn(file, args, options);
         let error = '';
         let exited = false;
diff --git a/src/test/common/common.test.ts b/src/test/common/common.test.ts
index 3a53107f3c2d..2a04c3c2737f 100644
--- a/src/test/common/common.test.ts
+++ b/src/test/common/common.test.ts
@@ -44,7 +44,18 @@ suite('ChildProc', () => {
         }).then(done).catch(done);
     });
 
-    test('Stream Stdout with Threads', done => {
+    test('Stream Stdout (Unicode)', async () => {
+        const output: string[] = [];
+        function handleOutput(data: string) {
+            output.push(data);
+        }
+        await execPythonFile('python', ['-c', `print('öä')`], __dirname, false, handleOutput)
+        assert.equal(output.length, 1, 'Ouput length incorrect');
+        assert.equal(output[0], 'öä' + EOL, 'Ouput value incorrect');
+    });
+
+    test('Stream Stdout with Threads', function (done) {
+        this.timeout(6000);
         const output: string[] = [];
         function handleOutput(data: string) {
             output.push(data);