diff --git a/homeassistant/components/modbus/const.py b/homeassistant/components/modbus/const.py
index e507717b22c..c12c50cdc07 100644
--- a/homeassistant/components/modbus/const.py
+++ b/homeassistant/components/modbus/const.py
@@ -25,6 +25,7 @@ DATA_TYPE_CUSTOM = "custom"
 DATA_TYPE_FLOAT = "float"
 DATA_TYPE_INT = "int"
 DATA_TYPE_UINT = "uint"
+DATA_TYPE_STRING = "string"
 
 # call types
 CALL_TYPE_COIL = "coil"
diff --git a/homeassistant/components/modbus/sensor.py b/homeassistant/components/modbus/sensor.py
index 8c475a114eb..64fbc466b1c 100644
--- a/homeassistant/components/modbus/sensor.py
+++ b/homeassistant/components/modbus/sensor.py
@@ -34,6 +34,7 @@ from .const import (
     DATA_TYPE_CUSTOM,
     DATA_TYPE_FLOAT,
     DATA_TYPE_INT,
+    DATA_TYPE_STRING,
     DATA_TYPE_UINT,
     DEFAULT_HUB,
     MODBUS_DOMAIN,
@@ -69,7 +70,13 @@ PLATFORM_SCHEMA = PLATFORM_SCHEMA.extend(
                 vol.Required(CONF_REGISTER): cv.positive_int,
                 vol.Optional(CONF_COUNT, default=1): cv.positive_int,
                 vol.Optional(CONF_DATA_TYPE, default=DATA_TYPE_INT): vol.In(
-                    [DATA_TYPE_INT, DATA_TYPE_UINT, DATA_TYPE_FLOAT, DATA_TYPE_CUSTOM]
+                    [
+                        DATA_TYPE_INT,
+                        DATA_TYPE_UINT,
+                        DATA_TYPE_FLOAT,
+                        DATA_TYPE_STRING,
+                        DATA_TYPE_CUSTOM,
+                    ]
                 ),
                 vol.Optional(CONF_DEVICE_CLASS): DEVICE_CLASSES_SCHEMA,
                 vol.Optional(CONF_HUB, default=DEFAULT_HUB): cv.string,
@@ -98,7 +105,9 @@ def setup_platform(hass, config, add_entities, discovery_info=None):
 
     for register in config[CONF_REGISTERS]:
         structure = ">i"
-        if register[CONF_DATA_TYPE] != DATA_TYPE_CUSTOM:
+        if register[CONF_DATA_TYPE] == DATA_TYPE_STRING:
+            structure = str(register[CONF_COUNT] * 2) + "s"
+        elif register[CONF_DATA_TYPE] != DATA_TYPE_CUSTOM:
             try:
                 structure = (
                     f">{data_types[register[CONF_DATA_TYPE]][register[CONF_COUNT]]}"
@@ -142,6 +151,7 @@ def setup_platform(hass, config, add_entities, discovery_info=None):
                 register[CONF_OFFSET],
                 structure,
                 register[CONF_PRECISION],
+                register[CONF_DATA_TYPE],
                 register.get(CONF_DEVICE_CLASS),
             )
         )
@@ -168,6 +178,7 @@ class ModbusRegisterSensor(RestoreEntity):
         offset,
         structure,
         precision,
+        data_type,
         device_class,
     ):
         """Initialize the modbus register sensor."""
@@ -183,6 +194,7 @@ class ModbusRegisterSensor(RestoreEntity):
         self._offset = offset
         self._precision = precision
         self._structure = structure
+        self._data_type = data_type
         self._device_class = device_class
         self._value = None
         self._available = True
@@ -243,13 +255,16 @@ class ModbusRegisterSensor(RestoreEntity):
             registers.reverse()
 
         byte_string = b"".join([x.to_bytes(2, byteorder="big") for x in registers])
-        val = struct.unpack(self._structure, byte_string)[0]
-        val = self._scale * val + self._offset
-        if isinstance(val, int):
-            self._value = str(val)
-            if self._precision > 0:
-                self._value += "." + "0" * self._precision
+        if self._data_type != DATA_TYPE_STRING:
+            val = struct.unpack(self._structure, byte_string)[0]
+            val = self._scale * val + self._offset
+            if isinstance(val, int):
+                self._value = str(val)
+                if self._precision > 0:
+                    self._value += "." + "0" * self._precision
+            else:
+                self._value = f"{val:.{self._precision}f}"
         else:
-            self._value = f"{val:.{self._precision}f}"
+            self._value = byte_string.decode()
 
         self._available = True
diff --git a/tests/components/modbus/test_modbus_sensor.py b/tests/components/modbus/test_modbus_sensor.py
index 6207a363937..ab4d745dc50 100644
--- a/tests/components/modbus/test_modbus_sensor.py
+++ b/tests/components/modbus/test_modbus_sensor.py
@@ -13,6 +13,7 @@ from homeassistant.components.modbus.const import (
     CONF_SCALE,
     DATA_TYPE_FLOAT,
     DATA_TYPE_INT,
+    DATA_TYPE_STRING,
     DATA_TYPE_UINT,
 )
 from homeassistant.components.sensor import DOMAIN as SENSOR_DOMAIN
@@ -357,3 +358,23 @@ async def test_float_data_type(hass, mock_hub):
         register_words=[16286, 1617],
         expected="1.23457",
     )
+
+
+async def test_string_data_type(hass, mock_hub):
+    """Test byte string register data type."""
+    register_config = {
+        CONF_COUNT: 8,
+        CONF_REGISTER_TYPE: CALL_TYPE_REGISTER_HOLDING,
+        CONF_DATA_TYPE: DATA_TYPE_STRING,
+        CONF_SCALE: 1,
+        CONF_OFFSET: 0,
+        CONF_PRECISION: 0,
+    }
+    await run_test(
+        hass,
+        mock_hub,
+        register_config,
+        SENSOR_DOMAIN,
+        register_words=[0x3037, 0x2D30, 0x352D, 0x3230, 0x3230, 0x2031, 0x343A, 0x3335],
+        expected="07-05-2020 14:35",
+    )