Here, a case of a rare epithelial sheath neuroma (ESN) is reported. A 49-year-old white female presented with a 5 mm solitary, slightly raised, erythematous, itchy papule on her right upper back. The clinical impression was consistent with an inflamed nevus. The patient had no past medical history of malignancy or a family history of neurofibromatosis. There was no prior trauma, surgical procedures, or skin disease at the site. After excision, the patient has had no recurrence at the surgery site during a 4-months follow-up period. ESN is characterized by enlarged nerve fibers ensheathed by a sometimes keratinized squamous epithelium located in the superficial dermis where large nerves are not normally found. It is believed to be a benign neoplasm and simple excision is curative. The histologic differential diagnosis of ESN is presented, and possible mechanisms of its pathogenesis are discussed. It is important for the pathologist and dermatologist to be cognizant of this lesion to prevent misdiagnosis of perineural invasion.