Sebaceous carcinoma of the eyelid is frequently misdiagnosed clinically and histopathologically. The tumor may present as a lid mass, recurrent chalazion, or diffuse unilateral blepharoconjunctivitis. Fifty percent of cases are misdiagnosed, often by an inexperienced general pathologist interpreting the initial biopsy. Frozen-section monitoring of surgical margins has been reported unreliable in 25% of cases. Mohs surgery is also unreliable in cases where there is pagetoid intraepithelial spread or skip lesions. This tumor may spread regionally into the lacrimal secretory and excretory systems, to regional lymph nodes, and rarely disseminate hematogenously. Guidelines for management are discussed.