With default settings you cannot enter German umlaute in iTerm: If you type ‘รค’ it becomes ‘a’. This has bugged me for a while now, up to the point where I actually read the iTerm FAQ 
This works for me:
- Create a ~/.inputrc:
set meta-flag on
set input-meta on
set output-meta on
set convert-meta off - Adapt your iTerm terminal profile settings:
- Terminal type should be identical to the content of the $TERM variable (ansi is default and seems also to work with vi and emacs)
- Terminal encoding should be Unicode (UTF-8)
Next step will be to make umlaute also work in Emacs and vi
