diff --git a/CHANGES b/CHANGES
index d68df87a4e..931332984d 100644
--- a/CHANGES
+++ b/CHANGES
@@ -20,6 +20,7 @@ Version 2.7.4
 - Fixed backtracking string regexes in JavaScript/TypeScript lexers (#1637)
 - Limit recursion with nesting Ruby heredocs (#1638)
 - Fixed a few inefficient regexes for guessing lexers
+- Fixed the raw token lexer handling of Unicode (#1616)
 
 
 Version 2.7.3
diff --git a/pygments/lexers/special.py b/pygments/lexers/special.py
index 84a924d903..48bb719e86 100644
--- a/pygments/lexers/special.py
+++ b/pygments/lexers/special.py
@@ -39,7 +39,7 @@ def analyse_text(text):
 
 _ttype_cache = {}
 
-line_re = re.compile(b'.*?\n')
+line_re = re.compile('.*?\n')
 
 
 class RawTokenLexer(Lexer):
@@ -65,20 +65,20 @@ def __init__(self, **options):
         Lexer.__init__(self, **options)
 
     def get_tokens(self, text):
-        if isinstance(text, str):
-            # raw token stream never has any non-ASCII characters
-            text = text.encode('ascii')
-        if self.compress == 'gz':
-            import gzip
-            gzipfile = gzip.GzipFile('', 'rb', 9, BytesIO(text))
-            text = gzipfile.read()
-        elif self.compress == 'bz2':
-            import bz2
-            text = bz2.decompress(text)
-
-        # do not call Lexer.get_tokens() because we do not want Unicode
-        # decoding to occur, and stripping is not optional.
-        text = text.strip(b'\n') + b'\n'
+        if self.compress:
+            if isinstance(text, str):
+                text = text.encode('latin1')
+            if self.compress == 'gz':
+                import gzip
+                gzipfile = gzip.GzipFile('', 'rb', 9, BytesIO(text))
+                text = gzipfile.read()
+            elif self.compress == 'bz2':
+                import bz2
+                text = bz2.decompress(text)
+            text = text.decode('latin1')
+
+        # do not call Lexer.get_tokens() because stripping is not optional.
+        text = text.strip('\n') + '\n'
         for i, t, v in self.get_tokens_unprocessed(text):
             yield t, v
 
@@ -86,9 +86,9 @@ def get_tokens_unprocessed(self, text):
         length = 0
         for match in line_re.finditer(text):
             try:
-                ttypestr, val = match.group().split(b'\t', 1)
+                ttypestr, val = match.group().rstrip().split('\t', 1)
             except ValueError:
-                val = match.group().decode('ascii', 'replace')
+                val = match.group()
                 ttype = Error
             else:
                 ttype = _ttype_cache.get(ttypestr)
@@ -100,6 +100,6 @@ def get_tokens_unprocessed(self, text):
                             raise ValueError('malformed token name')
                         ttype = getattr(ttype, ttype_)
                     _ttype_cache[ttypestr] = ttype
-                val = val[2:-2].decode('unicode-escape')
+                val = val[1:-1].encode().decode('unicode-escape')
             yield length, ttype, val
             length += len(val)