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The authors describe four examples of a peculiar cutaneous lesion characterized histopathologically by a proliferation of enlarged nerve fibers ensheathed by squamous epithelium involving the superficial dermis. The perineural epithelial sheaths were composed of uniform squamous epithelium with evidence of cornification in the form of dyskeratotic cells or resulting in orthokeratotic basket-weave corneocytes. Immunohistochemical studies confirmed the epithelial and neural nature of the two components of the lesions, with the nerve fibers expressing immunoreactivity for S-100 protein, neurofilaments, CD57, and nerve growth factor receptor, whereas the perineural epithelial sheaths showed immunoreactivity for cytokeratins. The authors propose the term “epithelial sheath neuroma” for this lesion and believe that it is a distinct and a previously undescribed benign neoplasm of both cutaneous nerves and epithelial elements.