Fatty tumors of the peripheral nerves, although rare, occur with sufficient frequency to pose problems in diagnosis and treatment. Moreover, the nomenclature of these tumors has suffered from controversy over their morpological description. These factors have contributed to a misunderstanding about the treatment of these localized nerve abnormalities leading, in the past, to unnecessary radical nerve excisions with resultant total motor and sensory deficit. This paper reviews the various types of fatty tumors, describes the morphology and pathophysiology of one such lesion, and provides a basis for a rational surgical approach.