diff --git a/railties/CHANGELOG b/railties/CHANGELOG
index 31cd8fe389..9fe7ad6a48 100644
--- a/railties/CHANGELOG
+++ b/railties/CHANGELOG
@@ -1,5 +1,7 @@
 *SVN*
 
+* MySQL, PostgreSQL: database.yml defaults to utf-8.  #8701 [matt]
+
 * Added db:version to get the current schema number [via Err The Blog]
 
 * Added --skip-migration option to scaffold and resource generators #8656 [Michael Glaesemann]
diff --git a/railties/configs/databases/mysql.yml b/railties/configs/databases/mysql.yml
index b3525663bf..aae510f860 100644
--- a/railties/configs/databases/mysql.yml
+++ b/railties/configs/databases/mysql.yml
@@ -13,6 +13,7 @@
 #   http://dev.mysql.com/doc/refman/5.0/en/old-client.html
 development:
   adapter: mysql
+  encoding: utf8
   database: <%= app_name %>_development
   username: root
   password:
@@ -27,6 +28,7 @@ development:
 # Do not set this db to the same as development or production.
 test:
   adapter: mysql
+  encoding: utf8
   database: <%= app_name %>_test
   username: root
   password:
@@ -38,6 +40,7 @@ test:
 
 production:
   adapter: mysql
+  encoding: utf8
   database: <%= app_name %>_production
   username: root
   password: 
diff --git a/railties/configs/databases/postgresql.yml b/railties/configs/databases/postgresql.yml
index 3c146c13a1..ee5a9d117a 100644
--- a/railties/configs/databases/postgresql.yml
+++ b/railties/configs/databases/postgresql.yml
@@ -6,6 +6,7 @@
 #   gem install postgres-pr
 development:
   adapter: postgresql
+  encoding: unicode
   database: <%= app_name %>_development
   username: <%= app_name %>
   password:
@@ -33,12 +34,14 @@ development:
 # Do not set this db to the same as development or production.
 test:
   adapter: postgresql
+  encoding: unicode
   database: <%= app_name %>_test
   username: <%= app_name %>
   password:
 
 production:
   adapter: postgresql
+  encoding: unicode
   database: <%= app_name %>_production
   username: <%= app_name %>
   password: