Several different pathologies may play a role in the etiology of posterior interosseous nerve (PIN) palsy such as trauma, radial tunnel syndrome, tumors, vasculitis, septic arthritis, and rheumatoid synovitis. The most common atraumatic factor is the compression of the nerve through its anatomic path. Parosteal lipoma around the proximal radius is the leading solid tumor seen among the neoplastic lesions. Although it is common, there are only case reports or few case series reported in the current literature and a comprehensive review is missing. Herein a rare case of PIN palsy due to parosteal lipoma of the proximal radius is presented together with a thorough literature review. A 48-year-old woman was presented with elbow pain and wrist drop that lasted for ten months. Electrodiagnostic and imaging findings lead to a diagnosis of PIN palsy due to parosteal lipoma seated over the proximal radius. Total surgical excision was performed, and the patient had been followed up for one year. Removal of the lipoma failed to recover the patient's symptoms. We reviewed all the reported cases and discussed, epidemiology, clinical findings, imaging studies, electrodiagnostic studies, pathology, treatment and prognosis of PIN palsy due to parosteal lipoma.