Lipoma is the most common benign soft tissue tumor; however, they are rarely seen in bony tissue. Osseous lipomas are classified as intraosseous (originating within the bone) or juxtacortical (on its surface). Surface lipomas may be further subdivided into parosteal lipoma and subparosteal lipoma, depending on its anatomical relationship to periosteum. Parosteal lipoma is a rare benign fatty neoplasm, accounting for less than 0.3% of all lipomas. They are almost always solitary occurring in the extremities sometimes with periosteal changes. Owing to its rarity, we report a case of parosteal lipoma of proximal radius in a 32-year-old female without periosteal changes and without nerve involvement. It was evaluated clinically and radiologically and a core needle biopsy was done which was suggestive of benign lipomatous lesion. Then en masse excisional biopsy was done and the diagnosis of parosteal lipoma was established after histopathological examination. Pertaining to its anatomical location, surgical dissection is very important to preserve superficial radial nerve, posterior interosseous nerve, and supinator muscle. At final follow-up, patient is doing well with full range of motion, preserved nerve function and elbow function.