diff --git a/changelogs/unreleased/sh-fix-squash-rebase-utf8-data.yml b/changelogs/unreleased/sh-fix-squash-rebase-utf8-data.yml
new file mode 100644
index 0000000000000000000000000000000000000000..c76b263152bd3ed6bb2083fe12cb8d09153ecb45
--- /dev/null
+++ b/changelogs/unreleased/sh-fix-squash-rebase-utf8-data.yml
@@ -0,0 +1,5 @@
+---
+title: Fix squash rebase not working when diff contained encoded data
+merge_request:
+author:
+type: fixed
diff --git a/lib/gitlab/git/repository.rb b/lib/gitlab/git/repository.rb
index 5f014e43c6fb4188c266cf6fe5c2d16c23291fb4..a10bc0dd32be4cb64143bbf7063777a56ca6c717 100644
--- a/lib/gitlab/git/repository.rb
+++ b/lib/gitlab/git/repository.rb
@@ -2195,6 +2195,7 @@ module Gitlab
           # Apply diff of the `diff_range` to the worktree
           diff = run_git!(%W(diff --binary #{diff_range}))
           run_git!(%w(apply --index), chdir: squash_path, env: env) do |stdin|
+            stdin.binmode
             stdin.write(diff)
           end
 
diff --git a/spec/lib/gitlab/git/repository_spec.rb b/spec/lib/gitlab/git/repository_spec.rb
index edcf8889c278861971b393d48f798543e56a7d67..0e9150964fae5534817c60cd011ec267844877a1 100644
--- a/spec/lib/gitlab/git/repository_spec.rb
+++ b/spec/lib/gitlab/git/repository_spec.rb
@@ -1,3 +1,4 @@
+# coding: utf-8
 require "spec_helper"
 
 describe Gitlab::Git::Repository, seed_helper: true do
@@ -2221,6 +2222,17 @@ describe Gitlab::Git::Repository, seed_helper: true do
           subject
         end
       end
+
+      context 'with an ASCII-8BIT diff', :skip_gitaly_mock do
+        let(:diff) { "diff --git a/README.md b/README.md\nindex faaf198..43c5edf 100644\n--- a/README.md\n+++ b/README.md\n@@ -1,4 +1,4 @@\n-testme\n+✓ testme\n ======\n \n Sample repo for testing gitlab features\n" }
+
+        it 'applies a ASCII-8BIT diff' do
+          allow(repository).to receive(:run_git!).and_call_original
+          allow(repository).to receive(:run_git!).with(%W(diff --binary #{start_sha}...#{end_sha})).and_return(diff.force_encoding('ASCII-8BIT'))
+
+          expect(subject.length).to eq(40)
+        end
+      end
     end
   end