Localized pigmented villonodular synovitis involving the posterior intra-articular structures of the knee joint is rare. We report a case of localized pigmented villonodular synovitis arising from the posterior capsule of the knee joint in a patient who presented with a history of repeated joint effusions and loss of terminal knee flexion. After successful, complete removal of the mass through the posteromedial portal, the patient was asymptomatic, with no evidence of recurrence during the 26-month follow-up period.