diff --git a/activerecord/CHANGELOG.md b/activerecord/CHANGELOG.md
index 888990416eb64967f09090c5921c82d5fca70725..c99f09f4785f6ba4decf80eb1011319d2f26704c 100644
--- a/activerecord/CHANGELOG.md
+++ b/activerecord/CHANGELOG.md
@@ -1,5 +1,9 @@
 ## Rails 4.0.0 (unreleased) ##
 
+*   Decode URI encoded attributes on database connection URLs.
+
+    *Shawn Veader*
+
 *   Add `find_or_create_by`, `find_or_create_by!` and
     `find_or_initialize_by` methods to `Relation`.
 
@@ -38,7 +42,7 @@
 
     *Jon Leighton*
 
-*   Fix bug with presence validation of associations. Would incorrectly add duplicated errors 
+*   Fix bug with presence validation of associations. Would incorrectly add duplicated errors
     when the association was blank. Bug introduced in 1fab518c6a75dac5773654646eb724a59741bc13.
 
     *Scott Willson*
diff --git a/activerecord/lib/active_record/connection_adapters/connection_specification.rb b/activerecord/lib/active_record/connection_adapters/connection_specification.rb
index b9a61f7d916ce7295a65f9353cf0bee5d593a023..09250d3c0171014f06efec0125b7f2f5c37ca6f0 100644
--- a/activerecord/lib/active_record/connection_adapters/connection_specification.rb
+++ b/activerecord/lib/active_record/connection_adapters/connection_specification.rb
@@ -73,6 +73,8 @@ def connection_url_to_hash(url) # :nodoc:
                    :database => config.path.sub(%r{^/},""),
                    :host     => config.host }
           spec.reject!{ |_,value| value.blank? }
+          uri_parser = URI::Parser.new
+          spec.map { |key,value| spec[key] = uri_parser.unescape(value) if value.is_a?(String) }
           if config.query
             options = Hash[config.query.split("&").map{ |pair| pair.split("=") }].symbolize_keys
             spec.merge!(options)
diff --git a/activerecord/test/cases/connection_specification/resolver_test.rb b/activerecord/test/cases/connection_specification/resolver_test.rb
index 434d2b7ba5cfd23c7d52f1373d71b27baea5ddc2..40c4dc94d142fcb172649f15305b0acb8f5bcfea 100644
--- a/activerecord/test/cases/connection_specification/resolver_test.rb
+++ b/activerecord/test/cases/connection_specification/resolver_test.rb
@@ -36,6 +36,14 @@ def test_url_port
             :host     => "foo",
             :encoding => "utf8" }, spec)
         end
+
+        def test_encoded_password
+          skip "only if mysql is available" unless defined?(MysqlAdapter)
+          password = 'am@z1ng_p@ssw0rd#!'
+          encoded_password = URI.encode_www_form_component(password)
+          spec = resolve "mysql://foo:#{encoded_password}@localhost/bar"
+          assert_equal password, spec[:password]
+        end
       end
     end
   end