diff --git a/packages/next/server/image-optimizer.ts b/packages/next/server/image-optimizer.ts
index 4ddb4478f6..eabb4ee55a 100644
--- a/packages/next/server/image-optimizer.ts
+++ b/packages/next/server/image-optimizer.ts
@@ -69,22 +69,20 @@ export async function imageOptimizer(
   }
 
   const { headers } = req
-  const { url: decodedUrl, w, q } = parsedUrl.query
+  const { url, w, q } = parsedUrl.query
   const mimeType = getSupportedMimeType(MODERN_TYPES, headers.accept)
   let href: string
 
-  if (!decodedUrl) {
+  if (!url) {
     res.statusCode = 400
     res.end('"url" parameter is required')
     return { finished: true }
-  } else if (Array.isArray(decodedUrl)) {
+  } else if (Array.isArray(url)) {
     res.statusCode = 400
     res.end('"url" parameter cannot be an array')
     return { finished: true }
   }
 
-  const url = encodeURI(decodedUrl)
-
   let isAbsolute: boolean
 
   if (url.startsWith('/')) {
diff --git a/packages/next/server/next-server.ts b/packages/next/server/next-server.ts
index d62b6ded0d..f3d90464fb 100644
--- a/packages/next/server/next-server.ts
+++ b/packages/next/server/next-server.ts
@@ -1158,7 +1158,14 @@ export default class Server {
             pathParts.splice(0, basePathParts.length)
           }
 
-          const path = `/${pathParts.join('/')}`
+          let path = `/${pathParts.join('/')}`
+
+          if (!publicFiles.has(path)) {
+            // In `next-dev-server.ts`, we ensure encoded paths match
+            // decoded paths on the filesystem. So we need do the
+            // opposite here: make sure decoded paths match encoded.
+            path = encodeURI(path)
+          }
 
           if (publicFiles.has(path)) {
             await this.serveStatic(
diff --git a/test/integration/image-component/unicode/next.config.js b/test/integration/image-component/unicode/next.config.js
new file mode 100644
index 0000000000..eb554b46c1
--- /dev/null
+++ b/test/integration/image-component/unicode/next.config.js
@@ -0,0 +1,5 @@
+module.exports = {
+  images: {
+    domains: ['image-optimization-test.vercel.app'],
+  },
+}
diff --git a/test/integration/image-component/unicode/pages/index.js b/test/integration/image-component/unicode/pages/index.js
new file mode 100644
index 0000000000..bdc4ea840f
--- /dev/null
+++ b/test/integration/image-component/unicode/pages/index.js
@@ -0,0 +1,33 @@
+import React from 'react'
+import Image from 'next/image'
+import img from '../public/äöü.png'
+
+const Page = () => {
+  return (
+    <div>
+      <h1>Unicode Image URL</h1>
+      <Image id="static" src={img} />
+      <Image id="internal" src="/äöü.png" width={400} height={400} />
+      <Image
+        id="external"
+        src="https://image-optimization-test.vercel.app/äöü.png"
+        width={400}
+        height={400}
+      />
+      <Image
+        id="internal-space"
+        src="/hello%20world.jpg"
+        width={200}
+        height={200}
+      />
+      <Image
+        id="external-space"
+        src="https://image-optimization-test.vercel.app/hello%20world.jpg"
+        width={200}
+        height={200}
+      />
+    </div>
+  )
+}
+
+export default Page
diff --git a/test/integration/image-component/unicode/public/hello world.jpg b/test/integration/image-component/unicode/public/hello world.jpg
new file mode 100644
index 0000000000..e14fafc5cf
Binary files /dev/null and b/test/integration/image-component/unicode/public/hello world.jpg differ
diff --git a/test/integration/image-component/unicode/public/äöü.png b/test/integration/image-component/unicode/public/äöü.png
new file mode 100644
index 0000000000..e14fafc5cf
Binary files /dev/null and b/test/integration/image-component/unicode/public/äöü.png differ
diff --git a/test/integration/image-component/unicode/test/index.test.js b/test/integration/image-component/unicode/test/index.test.js
new file mode 100644
index 0000000000..53e224848d
--- /dev/null
+++ b/test/integration/image-component/unicode/test/index.test.js
@@ -0,0 +1,96 @@
+/* eslint-env jest */
+
+import {
+  findPort,
+  killApp,
+  launchApp,
+  nextBuild,
+  nextStart,
+} from 'next-test-utils'
+import webdriver from 'next-webdriver'
+//import fetch from 'node-fetch'
+import { join } from 'path'
+
+jest.setTimeout(1000 * 60)
+
+const appDir = join(__dirname, '../')
+
+let appPort
+let app
+let browser
+
+function runTests() {
+  it('should load static unicode image', async () => {
+    const src = await browser.elementById('static').getAttribute('src')
+    expect(src).toMatch(
+      /_next%2Fstatic%2Fimage%2Fpublic%2F%C3%A4%C3%B6%C3%BC(.+)png/
+    )
+    const res = await fetch(src)
+    expect(res.status).toBe(200)
+  })
+
+  it('should load internal unicode image', async () => {
+    const src = await browser.elementById('internal').getAttribute('src')
+    expect(src).toMatch('/_next/image?url=%2F%C3%A4%C3%B6%C3%BC.png')
+    const res = await fetch(src)
+    expect(res.status).toBe(200)
+  })
+
+  it('should load external unicode image', async () => {
+    const src = await browser.elementById('external').getAttribute('src')
+    expect(src).toMatch(
+      '/_next/image?url=https%3A%2F%2Fimage-optimization-test.vercel.app%2F%C3%A4%C3%B6%C3%BC.png'
+    )
+    const res = await fetch(src)
+    expect(res.status).toBe(200)
+  })
+
+  it('should load internal image with space', async () => {
+    const src = await browser.elementById('internal-space').getAttribute('src')
+    expect(src).toMatch('/_next/image?url=%2Fhello%2520world.jpg')
+    const res = await fetch(src)
+    expect(res.status).toBe(200)
+  })
+
+  it('should load external image with space', async () => {
+    const src = await browser.elementById('external-space').getAttribute('src')
+    expect(src).toMatch(
+      '/_next/image?url=https%3A%2F%2Fimage-optimization-test.vercel.app%2Fhello%2520world.jpg'
+    )
+    const res = await fetch(src)
+    expect(res.status).toBe(200)
+  })
+}
+
+describe('Image Component Unicode Image URL', () => {
+  describe('dev mode', () => {
+    beforeAll(async () => {
+      appPort = await findPort()
+      app = await launchApp(appDir, appPort)
+      browser = await webdriver(appPort, '/')
+    })
+    afterAll(() => {
+      killApp(app)
+      if (browser) {
+        browser.close()
+      }
+    })
+    runTests()
+  })
+
+  describe('server mode', () => {
+    beforeAll(async () => {
+      await nextBuild(appDir)
+      appPort = await findPort()
+      app = await nextStart(appDir, appPort)
+      browser = await webdriver(appPort, '/')
+    })
+    afterAll(() => {
+      killApp(app)
+      if (browser) {
+        browser.close()
+      }
+    })
+    runTests()
+  })
+})