diff --git a/expand.cpp b/expand.cpp
index 0eb6a72f5..ed6b6e6d0 100644
--- a/expand.cpp
+++ b/expand.cpp
@@ -1633,7 +1633,6 @@ static void expand_home_directory(wcstring &input)
             if (userinfo == NULL)
             {
                 tilde_error = true;
-                input[0] = L'~';
             }
             else
             {
@@ -1641,10 +1640,17 @@ static void expand_home_directory(wcstring &input)
             }
         }
 
-        if (! tilde_error)
+        wchar_t *realhome;
+        realhome = wrealpath(home, NULL);
+
+        if (! tilde_error && realhome)
         {
-            input.replace(input.begin(), input.begin() + tail_idx, home);
+            input.replace(input.begin(), input.begin() + tail_idx, realhome);
         }
+	else
+	{
+            input[0] = L'~';
+	}
     }
 }
 
diff --git a/tests/expansion.in b/tests/expansion.in
index a22251272..34662d487 100644
--- a/tests/expansion.in
+++ b/tests/expansion.in
@@ -80,3 +80,15 @@ echo $foo[d]
 
 echo ()[1]
 echo ()[d]
+
+# Test tilde expansion
+set tmpdir (mktemp -d)
+mkdir $tmpdir/realhome
+ln -s $tmpdir/realhome $tmpdir/linkhome
+set expandedtilde (env HOME=$tmpdir/linkhome ../fish -c 'echo ~')
+if test $expandedtilde != $tmpdir/realhome
+	echo '~ expands to' $expandedtilde ' - expected ' $tmpdir/realhome
+end
+unlink $tmpdir/linkhome
+rmdir $tmpdir/realhome
+rmdir $tmpdir