We describe the clinical, radiological, and pathological features of an epithelial lined cyst in the cerebellopontine angle of a 54-year-old man who presented with headaches, ataxia, and multiple cranial nerve dysfunction. The surgically excised lesion showed a cyst lined by ciliated columnar epithelium with copious mucin secretion similar to that seen in colloid cysts of the third ventricle and enterogenous cysts of the spinal canal. In addition the cyst contained brownish material with an exuberant xanthogranulomatous reaction and numerous cholesterol clefts. This lesion closely resembled a cholesterol granuloma by radiographic and pathologic studies. Although two examples of neuroepithelial lined cysts have been described in the cerebellopontine angle, to our knowledge a lesion similar to that in our patient has not been reported previously.