An epidermal inclusion cyst is a widespread benign intradermal lesion and may occur anywhere in the body. Normally, it appears as a non-tender, soft mass of variable size. Dissection usually reveals grayish-white or whitish gelatinous materials and a smooth inner surface. The overlying skin almost always shows unremarkable changes. On occasion, the cyst may rupture and induce an inflammatory reaction. It rarely turns malignant or displays a firmer mass. This study reports on a rare case of squamous cell carcinoma arising from the lining cells of an epidermal inclusion cyst, which was located in the left axillary region of a 68-year-old male patient. Clinically, it is difficult to differentiate between a benign and malignant cystic lesion. Histological examination normally yields the diagnosis. Once a diagnosis is confirmed, the tumor should be widely excised with a free margin. The outcome is always excellent. We therefore emphasize that all resected skin cystic specimens should undergo further microscopic examination to avoid any unnecessary misdiagnosis.