LilyPond uses the Pango library to format multi-lingual texts. This means that any text, be it title, lyric text, or musical instruction contaning non-ASCII characters should be entered as Unicode.
Depending on the fonts installed, the following fragment shows Hebrew and Cyrillic lyrics,
The TeX backend does not handle encoding specially at all. Strings in the input are put in the output as-is. Extents of text items in the TeX backend, are determined by reading a file created via the texstr backend,
lilypond -b texstr input/les-nereides.ly latex les-nereides.texstr
The last command produces les-nereides.textmetrics, which is read when you execute
lilypond -b tex input/les-nereides.ly
Both les-nereides.texstr and les-nereides.tex need suitable LaTeX wrappers to load appropriate LaTeX packages for interpreting non-ASCII strings.
This page is for LilyPond-2.5.11 (development-branch).