--- a/babel/catalog/extract.py
+++ b/babel/catalog/extract.py
@@ -229,7 +229,8 @@
             elif tok == STRING:
                 if lineno is None:
                     lineno = stup[0]
-                buf.append(value[1:-1])
+                # Unwrap quotes in a safe manner
+                buf.append(eval(value, {'__builtins__':{}}, {}))
             elif tok == OP and value == ',':
                 messages.append(''.join(buf))
                 del buf[:]

--- a/babel/catalog/tests/extract.py
+++ b/babel/catalog/tests/extract.py
@@ -12,13 +12,24 @@
 # history and logs, available at http://babel.edgewall.org/log/.
 
 import doctest
+from StringIO import StringIO
 import unittest
 
 from babel.catalog import extract
 
+
+class ExtractPythonTestCase(unittest.TestCase):
+
+    def test_unicode_string_arg(self):
+        buf = StringIO("msg = _(u'Foo Bar')")
+        messages = list(extract.extract_python(buf, ('_',), {}))
+        self.assertEqual('Foo Bar', messages[0][2])
+
+
 def suite():
     suite = unittest.TestSuite()
     suite.addTest(doctest.DocTestSuite(extract))
+    suite.addTest(unittest.makeSuite(ExtractPythonTestCase))
     return suite
 
 if __name__ == '__main__':