diff --git a/lib/prism/translation/parser.rb b/lib/prism/translation/parser.rb
index 4f28afa86f..6b417be423 100644
--- a/lib/prism/translation/parser.rb
+++ b/lib/prism/translation/parser.rb
@@ -51,7 +51,7 @@ def parse(source_buffer)
         source = source_buffer.source
 
         offset_cache = build_offset_cache(source)
-        result = unwrap(Prism.parse(source, filepath: source_buffer.name, version: convert_for_prism(version), partial_script: true, encoding: false), offset_cache)
+        result = unwrap(Prism.parse(source, **prism_options), offset_cache)
 
         build_ast(result.value, offset_cache)
       ensure
@@ -64,7 +64,7 @@ def parse_with_comments(source_buffer)
         source = source_buffer.source
 
         offset_cache = build_offset_cache(source)
-        result = unwrap(Prism.parse(source, filepath: source_buffer.name, version: convert_for_prism(version), partial_script: true, encoding: false), offset_cache)
+        result = unwrap(Prism.parse(source, **prism_options), offset_cache)
 
         [
           build_ast(result.value, offset_cache),
@@ -83,7 +83,7 @@ def tokenize(source_buffer, recover = false)
         offset_cache = build_offset_cache(source)
         result =
           begin
-            unwrap(Prism.parse_lex(source, filepath: source_buffer.name, version: convert_for_prism(version), partial_script: true, encoding: false), offset_cache)
+            unwrap(Prism.parse_lex(source, **prism_options), offset_cache)
           rescue ::Parser::SyntaxError
             raise if !recover
           end
@@ -285,6 +285,20 @@ def build_range(location, offset_cache)
         )
       end
 
+      # Options for how prism should parse/lex the source.
+      def prism_options
+        options = {
+          filepath: @source_buffer.name,
+          version: convert_for_prism(version),
+          partial_script: true,
+        }
+        # The parser gem always encodes to UTF-8, unless it is binary.
+        # https://github.com/whitequark/parser/blob/v3.3.6.0/lib/parser/source/buffer.rb#L80-L107
+        options[:encoding] = false if @source_buffer.source.encoding != Encoding::BINARY
+
+        options
+      end
+
       # Converts the version format handled by Parser to the format handled by Prism.
       def convert_for_prism(version)
         case version
diff --git a/test/prism/fixtures/encoding_binary.txt b/test/prism/fixtures/encoding_binary.txt
new file mode 100644
index 0000000000..f3dfc85abd
--- /dev/null
+++ b/test/prism/fixtures/encoding_binary.txt
@@ -0,0 +1,9 @@
+# encoding: binary
+
+"\xcd"
+
+:"\xcd"
+
+/#{"\xcd"}/
+
+%W[\xC0]
diff --git a/test/prism/fixtures/encoding_euc_jp.txt b/test/prism/fixtures/encoding_euc_jp.txt
new file mode 100644
index 0000000000..bbee76eae5
--- /dev/null
+++ b/test/prism/fixtures/encoding_euc_jp.txt
@@ -0,0 +1,6 @@
+# encoding: euc-jp
+
+# \x8E indicates a double-byte character, \x01 is not a valid second byte in euc-jp
+"\x8E\x01"
+
+%W["\x8E\x01"]
diff --git a/test/prism/ruby/parser_test.rb b/test/prism/ruby/parser_test.rb
index 4ba38bd0c0..2e9211e70d 100644
--- a/test/prism/ruby/parser_test.rb
+++ b/test/prism/ruby/parser_test.rb
@@ -17,6 +17,18 @@
 # First, opt in to every AST feature.
 Parser::Builders::Default.modernize
 
+# The parser gem rejects some strings that would most likely lead to errors
+# in consumers due to encoding problems. RuboCop however monkey-patches this
+# method out in order to accept such code.
+# https://github.com/whitequark/parser/blob/v3.3.6.0/lib/parser/builders/default.rb#L2289-L2295
+Parser::Builders::Default.prepend(
+  Module.new {
+    def string_value(token)
+      value(token)
+    end
+  }
+)
+
 # Modify the source map == check so that it doesn't check against the node
 # itself so we don't get into a recursive loop.
 Parser::Source::Map.prepend(
diff --git a/test/prism/ruby/ruby_parser_test.rb b/test/prism/ruby/ruby_parser_test.rb
index 1aa0f540cc..1d530dd13b 100644
--- a/test/prism/ruby/ruby_parser_test.rb
+++ b/test/prism/ruby/ruby_parser_test.rb
@@ -26,6 +26,7 @@ def ==(other)
 module Prism
   class RubyParserTest < TestCase
     todos = [
+      "encoding_euc_jp.txt",
       "newline_terminated.txt",
       "regex_char_width.txt",
       "seattlerb/bug169.txt",
diff --git a/test/prism/snapshots/encoding_binary.txt b/test/prism/snapshots/encoding_binary.txt
new file mode 100644
index 0000000000..ad5449c1f1
--- /dev/null
+++ b/test/prism/snapshots/encoding_binary.txt
@@ -0,0 +1,49 @@
+@ ProgramNode (location: (3,0)-(9,8))
+├── flags: ∅
+├── locals: []
+└── statements:
+    @ StatementsNode (location: (3,0)-(9,8))
+    ├── flags: ∅
+    └── body: (length: 4)
+        ├── @ StringNode (location: (3,0)-(3,6))
+        │   ├── flags: newline
+        │   ├── opening_loc: (3,0)-(3,1) = "\""
+        │   ├── content_loc: (3,1)-(3,5) = "\\xcd"
+        │   ├── closing_loc: (3,5)-(3,6) = "\""
+        │   └── unescaped: "\xCD"
+        ├── @ SymbolNode (location: (5,0)-(5,7))
+        │   ├── flags: newline, static_literal
+        │   ├── opening_loc: (5,0)-(5,2) = ":\""
+        │   ├── value_loc: (5,2)-(5,6) = "\\xcd"
+        │   ├── closing_loc: (5,6)-(5,7) = "\""
+        │   └── unescaped: "\xCD"
+        ├── @ InterpolatedRegularExpressionNode (location: (7,0)-(7,11))
+        │   ├── flags: newline, static_literal
+        │   ├── opening_loc: (7,0)-(7,1) = "/"
+        │   ├── parts: (length: 1)
+        │   │   └── @ EmbeddedStatementsNode (location: (7,1)-(7,10))
+        │   │       ├── flags: ∅
+        │   │       ├── opening_loc: (7,1)-(7,3) = "\#{"
+        │   │       ├── statements:
+        │   │       │   @ StatementsNode (location: (7,3)-(7,9))
+        │   │       │   ├── flags: ∅
+        │   │       │   └── body: (length: 1)
+        │   │       │       └── @ StringNode (location: (7,3)-(7,9))
+        │   │       │           ├── flags: static_literal, frozen
+        │   │       │           ├── opening_loc: (7,3)-(7,4) = "\""
+        │   │       │           ├── content_loc: (7,4)-(7,8) = "\\xcd"
+        │   │       │           ├── closing_loc: (7,8)-(7,9) = "\""
+        │   │       │           └── unescaped: "\xCD"
+        │   │       └── closing_loc: (7,9)-(7,10) = "}"
+        │   └── closing_loc: (7,10)-(7,11) = "/"
+        └── @ ArrayNode (location: (9,0)-(9,8))
+            ├── flags: newline
+            ├── elements: (length: 1)
+            │   └── @ StringNode (location: (9,3)-(9,7))
+            │       ├── flags: ∅
+            │       ├── opening_loc: ∅
+            │       ├── content_loc: (9,3)-(9,7) = "\\xC0"
+            │       ├── closing_loc: ∅
+            │       └── unescaped: "\xC0"
+            ├── opening_loc: (9,0)-(9,3) = "%W["
+            └── closing_loc: (9,7)-(9,8) = "]"
diff --git a/test/prism/snapshots/encoding_euc_jp.txt b/test/prism/snapshots/encoding_euc_jp.txt
new file mode 100644
index 0000000000..934a1fdb7e
--- /dev/null
+++ b/test/prism/snapshots/encoding_euc_jp.txt
@@ -0,0 +1,24 @@
+@ ProgramNode (location: (4,0)-(6,14))
+├── flags: ∅
+├── locals: []
+└── statements:
+    @ StatementsNode (location: (4,0)-(6,14))
+    ├── flags: ∅
+    └── body: (length: 2)
+        ├── @ StringNode (location: (4,0)-(4,10))
+        │   ├── flags: newline
+        │   ├── opening_loc: (4,0)-(4,1) = "\""
+        │   ├── content_loc: (4,1)-(4,9) = "\\x8E\\x01"
+        │   ├── closing_loc: (4,9)-(4,10) = "\""
+        │   └── unescaped: "\x8E\x01"
+        └── @ ArrayNode (location: (6,0)-(6,14))
+            ├── flags: newline
+            ├── elements: (length: 1)
+            │   └── @ StringNode (location: (6,3)-(6,13))
+            │       ├── flags: ∅
+            │       ├── opening_loc: ∅
+            │       ├── content_loc: (6,3)-(6,13) = "\"\\x8E\\x01\""
+            │       ├── closing_loc: ∅
+            │       └── unescaped: "\"\x8E\x01\""
+            ├── opening_loc: (6,0)-(6,3) = "%W["
+            └── closing_loc: (6,13)-(6,14) = "]"
diff --git a/test/prism/snippets_test.rb b/test/prism/snippets_test.rb
index 26847da184..66802c5dc3 100644
--- a/test/prism/snippets_test.rb
+++ b/test/prism/snippets_test.rb
@@ -5,6 +5,7 @@
 module Prism
   class SnippetsTest < TestCase
     except = [
+      "encoding_binary.txt",
       "newline_terminated.txt",
       "seattlerb/begin_rescue_else_ensure_no_bodies.txt",
       "seattlerb/case_in.txt",