diff --git a/packages/zowe-explorer/CHANGELOG.md b/packages/zowe-explorer/CHANGELOG.md
index 8e9441547c..019ac013cd 100644
--- a/packages/zowe-explorer/CHANGELOG.md
+++ b/packages/zowe-explorer/CHANGELOG.md
@@ -20,6 +20,7 @@ All notable changes to the "vscode-extension-for-zowe" extension will be documen
 - Fixed an issue where clicking on a file in the Unix System Services tree caused the tree to abruptly change focus to the selected item. [#2486](https://github.com/zowe/zowe-explorer-vscode/issues/2486)
 - Fixed an issue where binary USS files were not fetched using the "Pull from Mainframe" context menu option. [#3355](https://github.com/zowe/zowe-explorer-vscode/issues/3355)
 - Fixed an issue with Auto Save where a failed UNIX file or data set save operation caused an infinite loop of save requests. [#2406](https://github.com/zowe/zowe-explorer-vscode/issues/2406), [#2627](https://github.com/zowe/zowe-explorer-vscode/issues/2627)
+- Fixed an issue where "Open with Encoding" menu failed when tagged encoding was selected for a binary USS file. [#3377](https://github.com/zowe/zowe-explorer-vscode/pull/3377)
 
 ## `2.18.0`
 
diff --git a/packages/zowe-explorer/__tests__/__unit__/shared/utils.unit.test.ts b/packages/zowe-explorer/__tests__/__unit__/shared/utils.unit.test.ts
index 3a86769159..bbdefff414 100644
--- a/packages/zowe-explorer/__tests__/__unit__/shared/utils.unit.test.ts
+++ b/packages/zowe-explorer/__tests__/__unit__/shared/utils.unit.test.ts
@@ -946,6 +946,23 @@ describe("Shared utils unit tests - function promptForEncoding", () => {
         expect(blockMocks.showQuickPick.mock.calls[0][1]).toEqual(expect.objectContaining({ placeHolder: "Current encoding is Binary" }));
     });
 
+    it("prompts for encoding for tagged USS binary file", async () => {
+        const blockMocks = createBlockMocks();
+        const node = new ZoweUSSNode({
+            label: "testFile",
+            collapsibleState: vscode.TreeItemCollapsibleState.None,
+            session: blockMocks.session,
+            profile: blockMocks.profile,
+            parentPath: "/root",
+        });
+        node.setEncoding(binaryEncoding);
+        blockMocks.showQuickPick.mockImplementationOnce(async (items) => items[0]);
+        const encoding = await sharedUtils.promptForEncoding(node, "binary");
+        expect(blockMocks.showQuickPick).toHaveBeenCalled();
+        expect(await blockMocks.showQuickPick.mock.calls[0][0][0]).toEqual({ label: "binary", description: "USS file tag" });
+        expect(encoding).toEqual({ kind: "binary" });
+    });
+
     it("prompts for encoding for USS file when profile contains encoding", async () => {
         const blockMocks = createBlockMocks();
         (blockMocks.profile.profile as any).encoding = "IBM-1047";
diff --git a/packages/zowe-explorer/src/shared/utils.ts b/packages/zowe-explorer/src/shared/utils.ts
index e1ba2a0ccf..3f5afb4d16 100644
--- a/packages/zowe-explorer/src/shared/utils.ts
+++ b/packages/zowe-explorer/src/shared/utils.ts
@@ -595,7 +595,7 @@ export async function promptForEncoding(node: IZoweDatasetTreeNode | IZoweUSSTre
             break;
         default:
             if (response != null) {
-                encoding = { kind: "other", codepage: response };
+                encoding = response === "binary" ? { kind: "binary" } : { kind: "other", codepage: response };
             }
             break;
     }