diff --git a/src/parser/ArcanistBundle.php b/src/parser/ArcanistBundle.php
--- a/src/parser/ArcanistBundle.php
+++ b/src/parser/ArcanistBundle.php
@@ -424,6 +424,9 @@
         $cur_target  = 'b/'.$cur_path;
       }
 
+      $old_target = $this->encodeGitTargetPath($old_target);
+      $cur_target = $this->encodeGitTargetPath($cur_target);
+
       $result[] = "diff --git {$old_index} {$cur_index}".$eol;
 
       if ($type == ArcanistDiffChangeType::TYPE_ADD) {
@@ -591,6 +594,24 @@
     return $results;
   }
 
+  private function encodeGitTargetPath($path) {
+    // See T8768. If a target path contains spaces, it must be terminated with
+    // a tab. If we don't do this, Mercurial has the wrong behavior when
+    // applying the patch. This results in a semantic trailing whitespace
+    // character:
+    //
+    //   +++ b/X Y.txt\t
+    //
+    // Everyone is at fault here and there are no winners.
+
+    if (strpos($path, ' ') !== false) {
+      $path = $path."\t";
+    }
+
+    return $path;
+  }
+
+
   private function getOldPath(ArcanistDiffChange $change) {
     $old_path = $change->getOldPath();
     $type = $change->getType();
diff --git a/src/parser/__tests__/ArcanistBundleTestCase.php b/src/parser/__tests__/ArcanistBundleTestCase.php
--- a/src/parser/__tests__/ArcanistBundleTestCase.php
+++ b/src/parser/__tests__/ArcanistBundleTestCase.php
@@ -33,6 +33,37 @@
     return ArcanistBundle::newFromDiff($diff);
   }
 
+  public function testTabEncoding() {
+    // See T8768. Test that we add semantic trailing tab literals to diffs
+    // touching files with spaces in them. This is a pain to encode using the
+    // support toolset here so just do it manually.
+
+    // Note that the "b/X Y.txt" line has a trailing tab literal.
+
+    $diff = <<<EODIFF
+diff --git a/X Y.txt b/X Y.txt
+new file mode 100644
+--- /dev/null
++++ b/X Y.txt\t
+@@ -0,0 +1 @@
++quack
+
+
+EODIFF;
+
+    $bundle = ArcanistBundle::newFromDiff($diff);
+
+    $changes = $bundle->getChanges();
+    $this->assertEqual(1, count($changes));
+
+    // The path should parse as "X Y.txt" despite the trailing tab.
+    $change = head($changes);
+    $this->assertEqual('X Y.txt', $change->getCurrentPath());
+
+    // The tab should be restored when the diff is output again.
+    $this->assertEqual($diff, $bundle->toGitPatch());
+  }
+
   /**
    * Unarchive a saved git repository and apply each commit as though via
    * "arc patch", verifying that the resulting tree hash is identical to the