diff --git a/src/PowerShellEditorServices/Workspace/Workspace.cs b/src/PowerShellEditorServices/Workspace/Workspace.cs
index 7b192cfed..edbe23d96 100644
--- a/src/PowerShellEditorServices/Workspace/Workspace.cs
+++ b/src/PowerShellEditorServices/Workspace/Workspace.cs
@@ -11,6 +11,10 @@
 using System.Security;
 using System.Text;
 
+#if CoreCLR
+using System.Runtime.InteropServices;
+#endif
+
 namespace Microsoft.PowerShell.EditorServices
 {
     /// <summary>
@@ -355,15 +359,15 @@ private void RecursivelyFindReferences(
             }
         }
 
-        private string ResolveFilePath(string filePath)
+        internal string ResolveFilePath(string filePath)
         {
             if (!IsPathInMemory(filePath))
             {
                 if (filePath.StartsWith(@"file://"))
                 {
+                    filePath = Workspace.UnescapeDriveColon(filePath);
                     // Client sent the path in URI format, extract the local path
-                    Uri fileUri = new Uri(Uri.UnescapeDataString(filePath));
-                    filePath = fileUri.LocalPath;
+                    filePath = new Uri(filePath).LocalPath;
                 }
 
                 // Clients could specify paths with escaped space, [ and ] characters which .NET APIs
@@ -486,6 +490,40 @@ private string ResolveRelativeScriptPath(string baseFilePath, string relativePat
             return combinedPath;
         }
 
+        /// <summary>
+        /// Takes a file-scheme URI with an escaped colon after the drive letter and unescapes only the colon.
+        /// VSCode sends escaped colons after drive letters, but System.Uri expects unescaped.
+        /// </summary>
+        /// <param name="fileUri">The fully-escaped file-scheme URI string.</param>
+        /// <returns>A file-scheme URI string with the drive colon unescaped.</returns>
+        private static string UnescapeDriveColon(string fileUri)
+        {
+#if CoreCLR
+            if (!RuntimeInformation.IsOSPlatform(OSPlatform.Windows))
+            {
+                return fileUri;
+            }
+#endif
+            // Check here that we have something like "file:///C%3A/" as a prefix (caller must check the file:// part)
+            if (!(fileUri[7] == '/' &&
+                  char.IsLetter(fileUri[8]) &&
+                  fileUri[9] == '%' &&
+                  fileUri[10] == '3' &&
+                  fileUri[11] == 'A' &&
+                  fileUri[12] == '/'))
+            {
+                return fileUri;
+            }
+
+            var sb = new StringBuilder(fileUri.Length - 2); // We lost "%3A" and gained ":", so length - 2
+            sb.Append("file:///");
+            sb.Append(fileUri[8]); // The drive letter
+            sb.Append(':');
+            sb.Append(fileUri.Substring(12)); // The rest of the URI after the colon
+
+            return sb.ToString();
+        }
+
         #endregion
     }
 }
diff --git a/test/PowerShellEditorServices.Test/Session/WorkspaceTests.cs b/test/PowerShellEditorServices.Test/Session/WorkspaceTests.cs
index d40e59511..b93d796d0 100644
--- a/test/PowerShellEditorServices.Test/Session/WorkspaceTests.cs
+++ b/test/PowerShellEditorServices.Test/Session/WorkspaceTests.cs
@@ -70,5 +70,24 @@ public void CanDetermineIsPathInMemory()
                     $"Testing path {testCase.Path}");
             }
         }
+
+        [Theory()]
+        [InlineData("file:///C%3A/banana/", @"C:\banana\")]
+        [InlineData("file:///C%3A/banana/ex.ps1", @"C:\banana\ex.ps1")]
+        [InlineData("file:///E%3A/Path/to/awful%23path", @"E:\Path\to\awful#path")]
+        [InlineData("file:///path/with/no/drive", @"C:\path\with\no\drive")]
+        [InlineData("file:///path/wi[th]/squ[are/brackets/", @"C:\path\wi[th]\squ[are\brackets\")]
+        [InlineData("file:///Carrots/A%5Ere/Good/", @"C:\Carrots\A^re\Good\")]
+        [InlineData("file:///Users/barnaby/%E8%84%9A%E6%9C%AC/Reduce-Directory", @"C:\Users\barnaby\脚本\Reduce-Directory")]
+        [InlineData("file:///C%3A/Program%20Files%20%28x86%29/PowerShell/6/pwsh.exe", @"C:\Program Files (x86)\PowerShell\6\pwsh.exe")]
+        [InlineData("file:///home/maxim/test%20folder/%D0%9F%D0%B0%D0%BF%D0%BA%D0%B0/helloworld.ps1", @"C:\home\maxim\test folder\Папка\helloworld.ps1")]
+        public void CorrectlyResolvesPaths(string givenPath, string expectedPath)
+        {
+            Workspace workspace = new Workspace(PowerShellVersion, Logging.NullLogger);
+
+            string resolvedPath = workspace.ResolveFilePath(givenPath);
+
+            Assert.Equal(expectedPath, resolvedPath);
+        }
     }
 }