diff --git a/mercurial/bundle2.py b/mercurial/bundle2.py
--- a/mercurial/bundle2.py
+++ b/mercurial/bundle2.py
@@ -712,6 +712,8 @@ def handlereplycaps(op, inpart):
         else:
             key, vals = line.split('=', 1)
             vals = vals.split(',')
+        key = urllib.unquote(key)
+        vals = [urllib.unquote(v) for v in vals]
         caps[key] = vals
     if op.reply is None:
         op.reply = bundle20(op.ui, caps)
diff --git a/tests/test-bundle2.t b/tests/test-bundle2.t
--- a/tests/test-bundle2.t
+++ b/tests/test-bundle2.t
@@ -72,7 +72,7 @@ Create an extension to test bundle2 API
   >             raise util.Abort('%s' % exc)
   > 
   >     if opts['reply']:
-  >         capsstring = 'ping-pong\nelephants=babar,celeste\ncity=celesteville'
+  >         capsstring = 'ping-pong\nelephants=babar,celeste\ncity%3D%21=celeste%2Cville'
   >         bundler.addpart(bundle2.bundlepart('replycaps', data=capsstring))
   > 
   >     revs = opts['rev']
@@ -547,9 +547,9 @@ The reply is a bundle
       Patali Dirapata, Cromda Cromda Ripalo, Pata Pata, Ko Ko Ko
       Bokoro Dipoulito, Rondi Rondi Pepino, Pata Pata, Ko Ko Ko
       Emana Karassoli, Loucra Loucra Ponponto, Pata Pata, Ko Ko Ko.
-  \x00\x00\x00\x00\x00\x1b\x06output\x00\x00\x00\x01\x00\x01\x0b\x01in-reply-to4\x00\x00\x00\xc6debugreply: capabilities: (esc)
-  debugreply:     'city'
-  debugreply:         'celesteville'
+  \x00\x00\x00\x00\x00\x1b\x06output\x00\x00\x00\x01\x00\x01\x0b\x01in-reply-to4\x00\x00\x00\xc9debugreply: capabilities: (esc)
+  debugreply:     'city=!'
+  debugreply:         'celeste,ville'
   debugreply:     'elephants'
   debugreply:         'babar'
   debugreply:         'celeste'
@@ -569,7 +569,7 @@ The reply is valid
     :output:
       mandatory: 0
       advisory: 1
-      payload: 198 bytes
+      payload: 201 bytes
     :test:pong:
       mandatory: 1
       advisory: 0
@@ -588,8 +588,8 @@ Unbundle the reply to get the output:
   remote:     Bokoro Dipoulito, Rondi Rondi Pepino, Pata Pata, Ko Ko Ko
   remote:     Emana Karassoli, Loucra Loucra Ponponto, Pata Pata, Ko Ko Ko.
   remote: debugreply: capabilities:
-  remote: debugreply:     'city'
-  remote: debugreply:         'celesteville'
+  remote: debugreply:     'city=!'
+  remote: debugreply:         'celeste,ville'
   remote: debugreply:     'elephants'
   remote: debugreply:         'babar'
   remote: debugreply:         'celeste'