Palisaded encapsulated neuroma(PEN) is a rare intaneural neuroma. It usually occurs as a solitary, asymptomatic, skin-colored papule, and commonly affects the butterfly area of the face of middle-aged adults. However, it rarely involves oral mucosa including lip and should be differentiated from mucosal neuromas which generally occur as multiple small nodules of the lips and the anterior part of the tongue. We report a case of PEN occurring on the lower lip in a 33-year-old male. Histopathologically, it appeared as a well-circumscribed, encapsulated round nodule in the dermis. The nodule was composed of well-developed fascicles of wavy spindle cells separated by a loose matrix. Nuclear palisades were ill defined. On immunohistochemical staining, most tumor cells of the nodule were positive for S-100 protein and about 30% of tumor cells were positive for neural filament, but the capsule was negative for them. Epithelial membrane antigen was focally and discontinuously reactive on the capsule of the nodule.