Previous studies have yielded mixed findings regarding the effect of familiar and novel L2 graphemes on learners’ phonological encoding. The current study investigated this topic by comparing the effect of Pinyin and Chinese characters on English speakers’ Mandarin word learning. Different from previous research, this study examined both segmental and tonal encoding and compared participants from different Mandarin proficiency levels. Seventeen Advanced learners, 29 Intermediate learners, and 21 Naïve English speakers participated in a word-learning experiment in which half of the participants were exposed to the Pinyin spelling of the target words while the other half to characters. After the learning phase, they did a meaning – auditory stimulus matching task. Half of the stimuli were complete matches, while in the other half the stimulus mismatched the target either in segments or tones. The results revealed that at the Advanced level, the Character group was more accurate than the Pinyin group in rejecting tonal mismatches to the target words, while the opposite tendency was observed at the Naïve level. This study suggests that novel graphemes facilitate advanced L2 learners’ tonal encoding more than familiar graphemes, which is probably due to the unique nature of Chinese characters.