An unusual case of limited radial nerve palsy secondary to a parosteal lipoma is presented, along with a thorough review of the literature. Palsy of the posterior interosseous nerve secondary to compression by a lipoma is a rare occurrence. Most cases tend to occur in the fifth to eighth decades of life. The pattern of physical symptoms may be quite variable. A high degree of suspicion must be maintained in the setting of unexplained symptoms. The literature review revealed the presence of a diagnostic proximal forearm radiolucent mass in 13 of 15 patients. Although they are used as diagnostic aids, computed tomography and magnetic resonance imaging have not been shown to alter management. Though benign tumours constitute a minority of such cases, a plain radiograph is recommended in addition to electromyographic and nerve conduction studies.