Palisaded encapsulated neuroma (PEN) is a clinically-distinctive, benign, cutaneous nerve sheath tumor. It usually occurs as a solitary, asymptomatic, skin-colored papule, and commonly affects the face of middle-aged adults. We report a case of PEN which developed on the lower lip of a 44-year-old Korean man. It was a 5mm-sized skin colored papule. Histopathologically, it consisted of uniform, broad, interlacing fascicles of spindle cells and was surrounded by a complete capsule in the dermis. On immunohistochemical staining, the tumor cells of the nodule were positive for S-100 protein and neural filaments, whil the capsule of the nodule was positive for epithelial antigen.