diff --git a/packages/astro-parser/src/parse/state/tag.ts b/packages/astro-parser/src/parse/state/tag.ts
index f3d30b06d..70fa9e361 100644
--- a/packages/astro-parser/src/parse/state/tag.ts
+++ b/packages/astro-parser/src/parse/state/tag.ts
@@ -2,7 +2,7 @@
 
 import read_expression from '../read/expression.js';
 import read_style from '../read/style.js';
-import { closing_tag_omitted } from '../utils/html.js';
+import { decode_character_references, closing_tag_omitted } from '../utils/html.js';
 import { is_void } from '../../utils/names.js';
 import { Parser } from '../index.js';
 import { Directive, DirectiveType, TemplateNode, Text } from '../../interfaces.js';
@@ -533,7 +533,7 @@ export function read_sequence(parser: Parser, done: () => boolean): TemplateNode
 
   function flush() {
     if (current_chunk.raw) {
-      current_chunk.data = current_chunk.raw;
+      current_chunk.data = decode_character_references(current_chunk.raw);
       current_chunk.end = parser.index;
       chunks.push(current_chunk);
     }
diff --git a/packages/astro-parser/src/parse/state/text.ts b/packages/astro-parser/src/parse/state/text.ts
index dec284ae4..020d066fd 100644
--- a/packages/astro-parser/src/parse/state/text.ts
+++ b/packages/astro-parser/src/parse/state/text.ts
@@ -1,5 +1,6 @@
 // @ts-nocheck
 
+import { decode_character_references } from '../utils/html.js';
 import { Parser } from '../index.js';
 
 export default function text(parser: Parser) {
@@ -24,7 +25,7 @@ export default function text(parser: Parser) {
     end: parser.index,
     type: 'Text',
     raw: data,
-    data,
+    data: decode_character_references(data),
   };
 
   parser.current().children.push(node);
diff --git a/packages/astro-parser/src/parse/utils/html.ts b/packages/astro-parser/src/parse/utils/html.ts
index 9988174f3..e4669a2db 100644
--- a/packages/astro-parser/src/parse/utils/html.ts
+++ b/packages/astro-parser/src/parse/utils/html.ts
@@ -1,3 +1,86 @@
+// @ts-nocheck
+
+import entities from './entities.js';
+
+const windows_1252 = [
+  8364, 129, 8218, 402, 8222, 8230, 8224, 8225, 710, 8240, 352, 8249, 338, 141, 381, 143, 144, 8216, 8217, 8220, 8221, 8226, 8211, 8212, 732, 8482, 353, 8250, 339, 157, 382, 376,
+];
+
+const entity_pattern = new RegExp(`&(#?(?:x[\\w\\d]+|\\d+|${Object.keys(entities).join('|')}))(?:;|\\b)`, 'g');
+
+export function decode_character_references(html: string) {
+  return html.replace(entity_pattern, (match, entity) => {
+    let code;
+
+    // Handle named entities
+    if (entity[0] !== '#') {
+      code = entities[entity];
+    } else if (entity[1] === 'x') {
+      code = parseInt(entity.substring(2), 16);
+    } else {
+      code = parseInt(entity.substring(1), 10);
+    }
+
+    if (!code) {
+      return match;
+    }
+
+    return String.fromCodePoint(validate_code(code));
+  });
+}
+
+const NUL = 0;
+
+// some code points are verboten. If we were inserting HTML, the browser would replace the illegal
+// code points with alternatives in some cases - since we're bypassing that mechanism, we need
+// to replace them ourselves
+//
+// Source: http://en.wikipedia.org/wiki/Character_encodings_in_HTML#Illegal_characters
+function validate_code(code: number) {
+  // line feed becomes generic whitespace
+  if (code === 10) {
+    return 32;
+  }
+
+  // ASCII range. (Why someone would use HTML entities for ASCII characters I don't know, but...)
+  if (code < 128) {
+    return code;
+  }
+
+  // code points 128-159 are dealt with leniently by browsers, but they're incorrect. We need
+  // to correct the mistake or we'll end up with missing € signs and so on
+  if (code <= 159) {
+    return windows_1252[code - 128];
+  }
+
+  // basic multilingual plane
+  if (code < 55296) {
+    return code;
+  }
+
+  // UTF-16 surrogate halves
+  if (code <= 57343) {
+    return NUL;
+  }
+
+  // rest of the basic multilingual plane
+  if (code <= 65535) {
+    return code;
+  }
+
+  // supplementary multilingual plane 0x10000 - 0x1ffff
+  if (code >= 65536 && code <= 131071) {
+    return code;
+  }
+
+  // supplementary ideographic plane 0x20000 - 0x2ffff
+  if (code >= 131072 && code <= 196607) {
+    return code;
+  }
+
+  return NUL;
+}
+
 // based on http://developers.whatwg.org/syntax.html#syntax-tag-omission
 const disallowed_contents = new Map([
   ['li', new Set(['li'])],
@@ -20,7 +103,7 @@ const disallowed_contents = new Map([
 // close it, like `<li>one<li>two`?
 export function closing_tag_omitted(current: string, next?: string) {
   if (disallowed_contents.has(current)) {
-    if (!next || disallowed_contents.get(current)!.has(next)) {
+    if (!next || disallowed_contents.get(current).has(next)) {
       return true;
     }
   }
diff --git a/packages/astro/test/fixtures/html-encoded-characters/snowpack.config.json b/packages/astro/test/fixtures/html-encoded-characters/snowpack.config.json
deleted file mode 100644
index 8f034781d..000000000
--- a/packages/astro/test/fixtures/html-encoded-characters/snowpack.config.json
+++ /dev/null
@@ -1,3 +0,0 @@
-{
-  "workspaceRoot": "../../../../../"
-}
diff --git a/packages/astro/test/fixtures/html-encoded-characters/src/pages/index.astro b/packages/astro/test/fixtures/html-encoded-characters/src/pages/index.astro
deleted file mode 100644
index a174c3491..000000000
--- a/packages/astro/test/fixtures/html-encoded-characters/src/pages/index.astro
+++ /dev/null
@@ -1,11 +0,0 @@
----
----
-<html>
-<head><title>HTML Encoded Characters</title></head>
-<body>
-  <h1>&nbsp;&nbsp;&nbsp;Hello, world&semi;</h1>
-	<div>
-		<p>Nested elements&quest; No problem&period;&nbsp;</p>
-	</div>
-</body>
-</html>
diff --git a/packages/astro/test/html-encoded-characters.test.js b/packages/astro/test/html-encoded-characters.test.js
deleted file mode 100644
index e12656a3c..000000000
--- a/packages/astro/test/html-encoded-characters.test.js
+++ /dev/null
@@ -1,23 +0,0 @@
-import { suite } from 'uvu';
-import * as assert from 'uvu/assert';
-import { doc } from './test-utils.js';
-import { setup } from './helpers.js';
-
-const HtmlEncodedChars = suite('HTML Encoded Characters');
-
-setup(HtmlEncodedChars, './fixtures/html-encoded-characters');
-
-HtmlEncodedChars("doesn't decode html entities", async ({ runtime }) => {
-  const result = await runtime.load('/');
-  if (result.error) throw new Error(result.error);
-
-  const $ = doc(result.contents);
-  // Note: although this may look like it's incorrectly decoding the chars,
-  // Cheerio is showing how the browsers _should_ interpret the HTML. If it
-  // wasn't working correctly, then the spaces would have been trimmed to a
-  // single space.
-  assert.equal($('h1').html(), '&nbsp;&nbsp;&nbsp;Hello, world;');
-  assert.equal($('div p').html(), 'Nested elements? No problem.&nbsp;');
-});
-
-HtmlEncodedChars.run();