Index: wagon-provider-api/src/main/java/org/apache/maven/wagon/PathUtils.java
===================================================================
--- wagon-provider-api/src/main/java/org/apache/maven/wagon/PathUtils.java	(revision 658410)
+++ wagon-provider-api/src/main/java/org/apache/maven/wagon/PathUtils.java	(working copy)
@@ -306,6 +306,7 @@
         if ( protocol.equals( "file" ) )
         {
             retValue = url.substring( protocol.length() + 1 );
+            retValue = decode( retValue );
             // special case: if omitted // on protocol, keep path as is
             if ( retValue.startsWith( "//" ) )
             {
@@ -390,6 +391,32 @@
         return retValue.trim();
     }
 
+    /**
+     * Decodes the specified (portion of a) URL. <strong>Note:</strong> This decoder assumes that ISO-8859-1 is used to
+     * convert URL-encoded octets to characters.
+     * 
+     * @param url The URL to decode, may be <code>null</code>.
+     * @return The decoded URL or <code>null</code> if the input was <code>null</code>.
+     */
+    private static String decode( String url )
+    {
+        String decoded = url;
+        if ( url != null )
+        {
+            int pos = -1;
+            while ( ( pos = decoded.indexOf( '%', pos + 1 ) ) >= 0 )
+            {
+                if ( pos + 2 < decoded.length() )
+                {
+                    String hexStr = decoded.substring( pos + 1, pos + 3 );
+                    char ch = (char) Integer.parseInt( hexStr, 16 );
+                    decoded = decoded.substring( 0, pos ) + ch + decoded.substring( pos + 3 );
+                }
+            }
+        }
+        return decoded;
+    }
+
     public static String user( String url )
     {
         String host = authorization( url );
Index: wagon-provider-api/src/test/java/org/apache/maven/wagon/PathUtilsTest.java
===================================================================
--- wagon-provider-api/src/test/java/org/apache/maven/wagon/PathUtilsTest.java	(revision 658410)
+++ wagon-provider-api/src/test/java/org/apache/maven/wagon/PathUtilsTest.java	(working copy)
@@ -153,6 +153,11 @@
         assertEquals( "c:/temp", PathUtils.basedir( "file:c:/temp" ) );
         assertEquals( "c:/temp", PathUtils.basedir( "file:c|/temp" ) );
         assertEquals( "/temp", PathUtils.basedir( "file:/temp" ) );
+
+        // URL decoding
+        assertEquals( "c:/my docs", PathUtils.basedir( "file:///c:/my docs" ) );
+        assertEquals( "c:/my docs", PathUtils.basedir( "file:///c:/my%20docs" ) );
+        assertEquals( "c:/name #%20?{}[]<>.txt", PathUtils.basedir( "file:///c:/name%20%23%2520%3F%7B%7D%5B%5D%3C%3E.txt" ) );
     }
 
     public void testEmptyBasedir()