OS Windows Vista Home Basic Ru + sp2
Python 2.6.2 (r262:71605, Apr 14 2009, 22:40:02) [MSC v.1500 32 bit
(Intel)] on win32

Simple code to crach (file expandvars_bug.py):
[code]
# -*- coding: cp1251 -*-
import os.path

var = r'C:\Вася\Microsoft'
print os.path.expandvars(var)
print os.path.expandvars(unicode(var))
[/code]
Console session:
[code]
C:\┬рё \Microsoft
Traceback (most recent call last):
  File "C:\Lang\test\python\expandvars_bug.py", line 6, in <module>
    print os.path.expandvars(unicode(var))
UnicodeDecodeError: 'ascii' codec can't decode byte 0xc2 in position 3:
ordinal
not in range(128)
[/code]

If you don't specify the encoding, unicode() will decode 'var' using the
default ascii codec and it will fail if 'var' contains non-ascii
characters. You should use var.decode(encoding) instead.

The fact that the first print is not displayed correctly is probably due
to the limitation of the Windows terminal.

Sorry.
First code is:
var = ${APPDATA}\Microsoft\Windows\Start Menu

In my windows 
F:\Lang\sf.net\svn\appupdater>echo %APPDATA%
C:\Users\Леново\AppData\Roaming

All code:
[code]
# -*- coding: cp1251 -*-
import os.path

var = r'${APPDATA}\Microsoft\Windows\Start Menu'
print os.path.expandvars(var)
print os.path.expandvars(unicode(var, 'cp1251'))
[/code]
Console session:
[code]
C:\Users\Леново\AppData\Roaming\Microsoft\Windows\Start Menu
Traceback (most recent call last):
  File "C:\Lang\test\python\expandvars_bug.py", line 6, in <module>
    print os.path.expandvars(unicode(var, 'cp1251'))
  File "C:\Lang\Python\26\lib\ntpath.py", line 388, in expandvars
    res = res + c
UnicodeDecodeError: 'ascii' codec can't decode byte 0xcb in position 9:
ordinal not in range(128)
[/code]

This is a shorter snippet to reproduce the issue:
import os
os.environ['TEST'] = u'äö'.encode('iso-8859-1')
os.path.expandvars(u'%TEST%a')

If the var is a non-ASCII byte string, and the string passed to expandvars() is Unicode, the var is decoded implicitly using the ASCII codec and the decoding fails.

On Python 3 the situation looks even worse:
import os
os.environ['TEST'] = 'äö'.encode('iso-8859-1');
os.path.expandvars('%TEST%a')

This snippet returns "b'\\xe4\\xf6'a".

FWIW, _winreg.ExpandEnvironmentStrings does the right thing.

D:\python-dev\trunk>PCbuild\amd64\python.exe
Python 2.7a3+ (trunk, Feb 23 2010, 20:22:24) [MSC v.1500 64 bit (AMD64)] on win32
Type "help", "copyright", "credits" or "license" for more information.
>>> import os, sys, _winreg
>>> os.environ["TEST"] = u"jalape\xf1o".encode(sys.getfilesystemencoding())
>>> print(os.path.expandvars(u"C:\\%TEST%"))
Traceback (most recent call last):
  File "<stdin>", line 1, in <module>
  File "D:\python-dev\trunk\lib\ntpath.py", line 354, in expandvars
    res = res + os.environ[var]
UnicodeDecodeError: 'ascii' codec can't decode byte 0xf1 in position 6: ordinal
not in range(128)
>>> print(_winreg.ExpandEnvironmentStrings(u"C:\\%TEST%"))
C:\jalapeño

Here is a patch for trunk.
It works for me, but my Unicode knowledge isn't the strongest. I believe sys.getfilesystemencoding() is what we want here. Can anyone confirm?

I think the patch is incorrect. It shouldn't do any encoding conversion, but perform the expanding completely in Unicode strings.

For 2.x, I recommend to close this as "won't fix". Expanding a Unicode strings is just not supported. If it was supported, it should be supported correctly, i.e. allowing both environment variable names and environment variable values to have non-ASCII characters in them, and, on Windows, even non-MBCS characters.

Here is a patch (for 3.3+) which add support for environment variables with non-ASCII values and names in posixpath and ntpath.

Ah, posixpath can be used on Windows. Here is corrected patch. Please test it on Windows.

Brian, could you please test it on Windows?

Sorry, I don't have a Windows environment setup right now.

New changeset 08746e015c64 by Serhiy Storchaka in branch '3.3':
Issue #6815: os.path.expandvars() now supports non-ASCII environment
http://hg.python.org/cpython/rev/08746e015c64

New changeset f3c146036e7c by Serhiy Storchaka in branch 'default':
Issue #6815: os.path.expandvars() now supports non-ASCII environment
http://hg.python.org/cpython/rev/f3c146036e7c

New changeset b5ad525076eb by Serhiy Storchaka in branch '3.3':
Fixed typo in previous commit (issue #6815).
http://hg.python.org/cpython/rev/b5ad525076eb

New changeset 6825395e6107 by Serhiy Storchaka in branch 'default':
Fixed typo in previous commit (issue #6815).
http://hg.python.org/cpython/rev/6825395e6107

The changes on ntpath.py are a little bit weird: it uses os.environb, whereas Windows is the only OS where os.environb does not exist. It looks like ntpath is available and tested on UNIX so the change looks to be valid, even you are not supposed to have Windows variables in your UNIX environment :-)

As bytes filenames, we should maybe deprecated bytes environment variables on Windows in Python 3.5. On Windows, the environment is Unicode. The bytes API is just provided for backward compatibility, but it should not be used.

By the way, the initial bug report was on Python 2.

Using os.fsencode/fsdecode instead of the ASCII encoding looks correct.

Here is patch for 2.7.

New changeset d11ca14c9a61 by Serhiy Storchaka in branch '2.7':
Issue #6815: os.path.expandvars() now supports non-ASCII Unicode environment
http://hg.python.org/cpython/rev/d11ca14c9a61