Upgrading from a previous version of Rails to the latest 2.3.2, you get an error:
NameError: uninitialized constant ApplicationController
both in the web browser and in console.
Since the introduction of Rails 2.3 the application.rb file has been renamed to application_controller.rb.
So in order to solve the problem just rename your file application.rb to application_controller.rb.
Thanks to the post here