An 89-year-old man presented with a clinically cystic 4-mm papule on the left temple. The clinical impression was a benign cyst. Pathologic examination revealed a small, symmetric-appearing, well-circumscribed, dermal-based cystic lesion with markedly atypical-appearing clear to squamoid cells lining the cyst wall, consistent with carcinoma in situ involving the cyst. The cells showed abundant glycogen-containing cytoplasm (confirmed by Periodic acid Schiff stains with and without diastase), consistent with tricholemmal differentiation, and areas of tricholemmal/pilar-type keratinization (without a granular layer), consistent with tricholemmal carcinoma in situ, most likely arising in a tricholemmal/pilar cyst. Ki-67 and p53 immunohistochemical stains were strongly positive (with more than 20% of nuclei staining on Ki-67 and more than 80% on p53) in the cyst-lining cells, further supporting the interpretation of carcinoma in situ. Multiple deeper level sections were examined but did not show any evidence of an associated invasive carcinoma. Tricholemmal (pilar) cysts are common benign adnexal lesions and atypia/dysplasia or carcinoma in situ arising within them is exceedingly rare. Previously, only one case of a tricholemmal cyst with carcinoma in situ has been reported. That case was associated with an atypical fibroxanthoma. We report only the second case of tricholemmal carcinoma in situ, most likely involving a tricholemmal cyst, which was not associated with another tumor or evidence of invasive carcinoma.