diff --git a/AUTHORS b/AUTHORS
index 1c29d09b..70f16bf7 100644
--- a/AUTHORS
+++ b/AUTHORS
@@ -26,3 +26,4 @@ Erik Rose
 Sascha Peilicke
 Andre Caron
 Joscha Feth
+Jordan Moldow
diff --git a/CHANGELOG b/CHANGELOG
index bc4419c2..f447541b 100644
--- a/CHANGELOG
+++ b/CHANGELOG
@@ -2,6 +2,9 @@
 
 - Add option to suppress printing of coverage report
   Patch by Eric Larson.
+- Fix #816: UnicodeDecodeError on failing tests with output which contains
+  non-ascii `unicode`s and non-ascii `str`s.
+  Patch by Jordan Moldow
 
 1.3.7
 
diff --git a/nose/plugins/capture.py b/nose/plugins/capture.py
index c81f21ec..ef2799f7 100644
--- a/nose/plugins/capture.py
+++ b/nose/plugins/capture.py
@@ -12,6 +12,7 @@
 import logging
 import os
 import sys
+import traceback
 from nose.plugins.base import Plugin
 from nose.pyversion import exc_to_unicode, force_unicode
 from nose.util import ln
@@ -71,26 +72,56 @@ def beforeTest(self, test):
     def formatError(self, test, err):
         """Add captured output to error report.
         """
-        test.capturedOutput = output = self.buffer
+        test.capturedOutput = output = ''
+        output_exc_info = None
+        try:
+            test.capturedOutput = output = self.buffer
+        except UnicodeError:
+            # python2's StringIO.StringIO [1] class has this warning:
+            #
+            #     The StringIO object can accept either Unicode or 8-bit strings,
+            #     but mixing the two may take some care. If both are used, 8-bit
+            #     strings that cannot be interpreted as 7-bit ASCII (that use the
+            #     8th bit) will cause a UnicodeError to be raised when getvalue()
+            #     is called.
+            #
+            # This exception handler is a protection against issue #816 [2].
+            # Capturing the exception info allows us to display it back to the
+            # user.
+            #
+            # [1] <https://github.com/python/cpython/blob/2.7/Lib/StringIO.py#L258>
+            # [2] <https://github.com/nose-devs/nose/issues/816>
+            output_exc_info = sys.exc_info()
         self._buf = None
-        if not output:
+        if (not output) and (not output_exc_info):
             # Don't return None as that will prevent other
             # formatters from formatting and remove earlier formatters
             # formats, instead return the err we got
             return err
         ec, ev, tb = err
-        return (ec, self.addCaptureToErr(ev, output), tb)
+        return (ec, self.addCaptureToErr(ev, output, output_exc_info=output_exc_info), tb)
 
     def formatFailure(self, test, err):
         """Add captured output to failure report.
         """
         return self.formatError(test, err)
 
-    def addCaptureToErr(self, ev, output):
+    def addCaptureToErr(self, ev, output, output_exc_info=None):
+        # If given, output_exc_info should be a 3-tuple from sys.exc_info(),
+        # from an exception raised while trying to get the captured output.
         ev = exc_to_unicode(ev)
         output = force_unicode(output)
-        return u'\n'.join([ev, ln(u'>> begin captured stdout <<'),
-                           output, ln(u'>> end captured stdout <<')])
+        error_text = [ev, ln(u'>> begin captured stdout <<'),
+                      output, ln(u'>> end captured stdout <<')]
+        if output_exc_info:
+            error_text.extend([u'OUTPUT ERROR: Could not get captured output.',
+                               # <https://github.com/python/cpython/blob/2.7/Lib/StringIO.py#L258>
+                               # <https://github.com/nose-devs/nose/issues/816>
+                               u'The test may have output both non-ASCII Unicode strings and non-ASCII 8-bit strings.',
+                               ln(u'>> begin captured stdout exception traceback <<'),
+                               u''.join(traceback.format_exception(*output_exc_info)),
+                               ln(u'>> end captured stdout exception traceback <<')])
+        return u'\n'.join(error_text)
 
     def start(self):
         self.stdout.append(sys.stdout)
diff --git a/unit_tests/test_capture_plugin.py b/unit_tests/test_capture_plugin.py
index edab7de0..7e395b26 100644
--- a/unit_tests/test_capture_plugin.py
+++ b/unit_tests/test_capture_plugin.py
@@ -4,6 +4,12 @@
 from optparse import OptionParser
 from nose.config import Config
 from nose.plugins.capture import Capture
+from nose.pyversion import force_unicode
+
+if sys.version_info[0] == 2:
+    py2 = True
+else:
+    py2 = False
 
 class TestCapturePlugin(unittest.TestCase):
 
@@ -62,6 +68,32 @@ def test_captures_nonascii_stdout(self):
         c.end()
         self.assertEqual(c.buffer, "test 日本\n")
 
+    def test_does_not_crash_with_nonascii_mixed_unicode_and_str(self):
+        class Dummy:
+            pass
+        d = Dummy()
+        c = Capture()
+        c.start()
+        printed_string = force_unicode("test 日本")
+        print printed_string
+        print printed_string.encode('utf-8')
+        try:
+            raise Exception("boom")
+        except:
+            err = sys.exc_info()
+        formatted = c.formatError(d, err)
+        _, fev, _ = formatted
+
+        if py2:
+            assert printed_string not in fev, "Output unexpectedly found in error message"
+            assert d.capturedOutput == '', "capturedOutput unexpectedly non-empty"
+            assert "OUTPUT ERROR" in fev
+            assert "captured stdout exception traceback" in fev
+            assert "UnicodeDecodeError" in fev
+        else:
+            assert printed_string in fev, "Output not found in error message"
+            assert printed_string in d.capturedOutput, "Output not attached to test"
+
     def test_format_error(self):
         class Dummy:
             pass