diff --git a/jps/jps-builders/src/org/jetbrains/jps/incremental/BuilderRegistry.java b/jps/jps-builders/src/org/jetbrains/jps/incremental/BuilderRegistry.java
index dbe6eecef318..8070a4a9f556 100644
--- a/jps/jps-builders/src/org/jetbrains/jps/incremental/BuilderRegistry.java
+++ b/jps/jps-builders/src/org/jetbrains/jps/incremental/BuilderRegistry.java
@@ -1,5 +1,6 @@
 package org.jetbrains.jps.incremental;
 
+import com.intellij.util.containers.ContainerUtil;
 import org.jetbrains.jps.idea.OwnServiceLoader;
 
 import java.util.*;
@@ -65,6 +66,10 @@ public class BuilderRegistry {
     return Collections.unmodifiableList(myModuleLevelBuilders.get(category)); // todo
   }
 
+  public List<ModuleLevelBuilder> getAllModuleLevelBuilders() {
+    return ContainerUtil.concat(myModuleLevelBuilders.values());
+  }
+
   public List<ProjectLevelBuilder> getProjectLevelBuilders() {
     return myProjectLevelBuilders;
   }
diff --git a/jps/jps-builders/src/org/jetbrains/jps/incremental/CompilerEncodingConfiguration.java b/jps/jps-builders/src/org/jetbrains/jps/incremental/CompilerEncodingConfiguration.java
new file mode 100644
index 000000000000..62bedef2151b
--- /dev/null
+++ b/jps/jps-builders/src/org/jetbrains/jps/incremental/CompilerEncodingConfiguration.java
@@ -0,0 +1,107 @@
+package org.jetbrains.jps.incremental;
+
+import com.intellij.openapi.util.io.FileUtil;
+import com.intellij.util.containers.ContainerUtil;
+import gnu.trove.THashMap;
+import org.jetbrains.annotations.NotNull;
+import org.jetbrains.annotations.Nullable;
+import org.jetbrains.jps.Module;
+import org.jetbrains.jps.ModuleChunk;
+import org.jetbrains.jps.incremental.fs.RootDescriptor;
+
+import java.io.File;
+import java.util.*;
+
+/**
+ * @author nik
+ */
+public class CompilerEncodingConfiguration {
+  private final Map<String, String> myFilePathToCharset;
+  private final ModuleRootsIndex myRootsIndex;
+  private Map<String, Set<String>> myModuleCharsetMap;
+
+  public CompilerEncodingConfiguration(Map<String, String> filePathToCharset, ModuleRootsIndex rootsIndex) {
+    myFilePathToCharset = filePathToCharset;
+    myRootsIndex = rootsIndex;
+  }
+
+  public Map<String, Set<String>> getModuleCharsetMap() {
+    if (myModuleCharsetMap == null) {
+      myModuleCharsetMap = computeModuleCharsetMap();
+    }
+    return myModuleCharsetMap;
+  }
+
+  private Map<String, Set<String>> computeModuleCharsetMap() {
+    final Map<String, Set<String>> map = new THashMap<String, Set<String>>();
+    final List<ModuleLevelBuilder> builders = BuilderRegistry.getInstance().getAllModuleLevelBuilders();
+    for (Map.Entry<String, String> entry : myFilePathToCharset.entrySet()) {
+      final String filePath = entry.getKey();
+      final String charset = entry.getValue();
+      File file = new File(FileUtil.toSystemDependentName(filePath));
+      if (charset == null || (!file.isDirectory() && !shouldHonorEncodingForCompilation(builders, file))) continue;
+
+      final RootDescriptor rootDescriptor = myRootsIndex.getModuleAndRoot(file);
+      if (rootDescriptor == null) continue;
+
+      final String module = rootDescriptor.module;
+      Set<String> set = map.get(module);
+      if (set == null) {
+        set = new LinkedHashSet<String>();
+        map.put(module, set);
+
+        final File sourceRoot = rootDescriptor.root;
+        File current = FileUtil.getParentFile(file);
+        String parentCharset = null;
+        while (current != null) {
+          final String currentCharset = myFilePathToCharset.get(FileUtil.toSystemIndependentName(current.getAbsolutePath()));
+          if (currentCharset != null) {
+            parentCharset = currentCharset;
+          }
+          if (FileUtil.filesEqual(current, sourceRoot)) {
+            break;
+          }
+          current = FileUtil.getParentFile(current);
+        }
+        if (parentCharset != null) {
+          set.add(parentCharset);
+        }
+      }
+      set.add(charset);
+    }
+
+    return map;
+  }
+
+  private static boolean shouldHonorEncodingForCompilation(List<ModuleLevelBuilder> builders, File file) {
+    for (ModuleLevelBuilder builder : builders) {
+      if (builder.shouldHonorFileEncodingForCompilation(file)) {
+        return true;
+      }
+    }
+    return false;
+  }
+
+  @Nullable
+  public String getPreferredModuleChunkEncoding(@NotNull ModuleChunk moduleChunk) {
+    for (Module module : moduleChunk.getModules()) {
+      final Set<String> encodings = getModuleCharsetMap().get(module.getName());
+      final String encoding = ContainerUtil.getFirstItem(encodings, null);
+      if (encoding != null) return encoding;
+    }
+    return null;
+  }
+
+  @NotNull
+  public Set<String> getAllModuleChunkEncodings(@NotNull ModuleChunk moduleChunk) {
+    final Map<String, Set<String>> map = getModuleCharsetMap();
+    Set<String> encodings = new HashSet<String>();
+    for (Module module : moduleChunk.getModules()) {
+      final Set<String> moduleEncodings = map.get(module.getName());
+      if (moduleEncodings != null) {
+        encodings.addAll(moduleEncodings);
+      }
+    }
+    return encodings;
+  }
+}
diff --git a/jps/jps-builders/src/org/jetbrains/jps/incremental/ModuleLevelBuilder.java b/jps/jps-builders/src/org/jetbrains/jps/incremental/ModuleLevelBuilder.java
index 014c9ff487f3..f480fde5b38f 100644
--- a/jps/jps-builders/src/org/jetbrains/jps/incremental/ModuleLevelBuilder.java
+++ b/jps/jps-builders/src/org/jetbrains/jps/incremental/ModuleLevelBuilder.java
@@ -41,6 +41,10 @@ public abstract class ModuleLevelBuilder extends Builder {
 
   public abstract ExitCode build(CompileContext context, ModuleChunk chunk) throws ProjectBuildException;
 
+  public boolean shouldHonorFileEncodingForCompilation(File file) {
+    return false;
+  }
+
   public final BuilderCategory getCategory() {
     return myCategory;
   }
diff --git a/jps/jps-builders/src/org/jetbrains/jps/incremental/java/JavaBuilder.java b/jps/jps-builders/src/org/jetbrains/jps/incremental/java/JavaBuilder.java
index 38f7516f288c..d7a5483a6608 100644
--- a/jps/jps-builders/src/org/jetbrains/jps/incremental/java/JavaBuilder.java
+++ b/jps/jps-builders/src/org/jetbrains/jps/incremental/java/JavaBuilder.java
@@ -223,6 +223,11 @@ public class JavaBuilder extends ModuleLevelBuilder {
     }
   }
 
+  @Override
+  public boolean shouldHonorFileEncodingForCompilation(File file) {
+    return JAVA_SOURCES_FILTER.accept(file) || FORM_SOURCES_FILTER.accept(file);
+  }
+
   @Nullable
   private static File getBoundSource(File srcRoot, File formFile) throws IOException {
     final String boundClassName = FormsParsing.readBoundClassName(formFile);
diff --git a/jps/jps-builders/src/org/jetbrains/jps/server/ProjectDescriptor.java b/jps/jps-builders/src/org/jetbrains/jps/server/ProjectDescriptor.java
index e62b7c878921..c0fa5acbc087 100644
--- a/jps/jps-builders/src/org/jetbrains/jps/server/ProjectDescriptor.java
+++ b/jps/jps-builders/src/org/jetbrains/jps/server/ProjectDescriptor.java
@@ -5,6 +5,7 @@ import org.jetbrains.jps.Module;
 import org.jetbrains.jps.Project;
 import org.jetbrains.jps.Sdk;
 import org.jetbrains.jps.incremental.BuildLoggingManager;
+import org.jetbrains.jps.incremental.CompilerEncodingConfiguration;
 import org.jetbrains.jps.incremental.ModuleRootsIndex;
 import org.jetbrains.jps.incremental.fs.BuildFSState;
 import org.jetbrains.jps.incremental.storage.BuildDataManager;
@@ -27,6 +28,7 @@ public final class ProjectDescriptor {
   public ModuleRootsIndex rootsIndex;
   private int myUseCounter = 1;
   private Set<JavaSdk> myProjectJavaSdks;
+  private CompilerEncodingConfiguration myEncodingConfiguration;
 
   public ProjectDescriptor(Project project,
                            BuildFSState fsState,
@@ -40,6 +42,7 @@ public final class ProjectDescriptor {
     myLoggingManager = loggingManager;
     this.rootsIndex = new ModuleRootsIndex(project);
     myProjectJavaSdks = new HashSet<JavaSdk>();
+    myEncodingConfiguration = new CompilerEncodingConfiguration(project.getFilePathToCharset(), rootsIndex);
     for (Module module : project.getModules().values()) {
       final Sdk sdk = module.getSdk();
       if (sdk instanceof JavaSdk && !myProjectJavaSdks.contains(sdk)) {
@@ -51,6 +54,10 @@ public final class ProjectDescriptor {
     }
   }
 
+  public CompilerEncodingConfiguration getEncodingConfiguration() {
+    return myEncodingConfiguration;
+  }
+
   public Set<JavaSdk> getProjectJavaSdks() {
     return myProjectJavaSdks;
   }
diff --git a/jps/model/src/org/jetbrains/jps/Project.groovy b/jps/model/src/org/jetbrains/jps/Project.groovy
index d08da5c5ed64..bc330008cf39 100644
--- a/jps/model/src/org/jetbrains/jps/Project.groovy
+++ b/jps/model/src/org/jetbrains/jps/Project.groovy
@@ -22,6 +22,7 @@ class Project {
   final IgnoredFilePatterns ignoredFilePatterns = new IgnoredFilePatterns()
 
   String projectCharset; // contains project charset, if not specified default charset will be used (used by compilers)
+  Map<String, String> filePathToCharset = [:];
 
   def Project() {
   }
diff --git a/jps/model/src/org/jetbrains/jps/idea/IdeaProjectLoader.groovy b/jps/model/src/org/jetbrains/jps/idea/IdeaProjectLoader.groovy
index a500b889211d..d40e9cc91e9b 100644
--- a/jps/model/src/org/jetbrains/jps/idea/IdeaProjectLoader.groovy
+++ b/jps/model/src/org/jetbrains/jps/idea/IdeaProjectLoader.groovy
@@ -340,6 +340,10 @@ public class IdeaProjectLoader {
       if ("PROJECT".equals(url)) {
         project.projectCharset = charset;
       }
+      else {
+        def path = projectMacroExpander.expandMacros(IdeaProjectLoadingUtil.pathFromUrl(url));
+        project.filePathToCharset[path] = charset;
+      }
     }
   }
 
diff --git a/plugins/groovy/rt/src/org/jetbrains/jps/incremental/groovy/GroovyBuilder.java b/plugins/groovy/rt/src/org/jetbrains/jps/incremental/groovy/GroovyBuilder.java
index d854a99bf2c6..f23b54077dd6 100644
--- a/plugins/groovy/rt/src/org/jetbrains/jps/incremental/groovy/GroovyBuilder.java
+++ b/plugins/groovy/rt/src/org/jetbrains/jps/incremental/groovy/GroovyBuilder.java
@@ -132,6 +132,11 @@ public class GroovyBuilder extends ModuleLevelBuilder {
     return moduleOutputPath.endsWith("/") ? moduleOutputPath : moduleOutputPath + "/";
   }
 
+  @Override
+  public boolean shouldHonorFileEncodingForCompilation(File file) {
+    return isGroovyFile(file.getAbsolutePath());
+  }
+
   private String getCompilerOutput(String moduleOutputDir) throws IOException {
     return FileUtil.toCanonicalPath((myForStubs ? FileUtil.createTempDirectory("groovyStubs", null) : new File(moduleOutputDir)).getPath());
   }