gsub seems to replace the original encoding of the give sting with the encoding of the gsub content.

gsub-test.rb

foo = 'fo'
foo.force_encoding('UTF-8')
puts foo.encoding.inspect # #<Encoding:UTF-8>

foo2 = foo.gsub(/o/) { |bar| 195.chr }

puts foo2.inspect # "f\xC3"
puts foo2.length.inspect # 2
puts foo2.encoding.inspect # #<Encoding:ASCII-8BIT>

gsub-test2.rb

# encoding: UTF-8

foo = 'föo'
foo.force_encoding('UTF-8')
puts foo.encoding.inspect # #<Encoding:UTF-8>

# breakes here
foo2 = foo.gsub(/o/) { |bar| "Русский".force_encoding("iso-8859-5") }

# never reached
puts foo2
puts foo2.inspect
puts foo2.length.inspect
puts foo2.encoding.inspect

gsub-test3.rb

# encoding: UTF-8

foo = "Русский".force_encoding("iso-8859-5")
puts foo.encoding.inspect # #<Encoding:ISO-8859-5>

# breakes here
foo2 = foo.gsub(/с/) { |bar| "föö".force_encoding("UTF-8") }

# never reached
puts foo2
puts foo2.inspect
puts foo2.length.inspect
puts foo2.encoding.inspect