Although ventriculoperitoneal shunt (VPS) is the most common procedure performed by pediatric neurosurgeons, it is still associated with frustrating complications, most common of which are obstruction and infection. Traumatic occipital artery pseudoaneurysm is a very rare complication of VPS procedure. To the best of our knowledge, there is no similar case reported in the English language literature. A 12-month-old patient suffered posthemorrhagic hydrocephalus of prematurity, and multiple other complications due to extreme prematurity, including immature lung disease, retinopathy of prematurity, necrotizing enterocolitis, bowel perforation, short bowel syndrome resulting in total parenteral nutrition-dependence, and hydrocephalus which was treated by insertion of VPS. Four weeks after the shunt, a slowly enlarging pulsatile swelling distal to the valve under the catheter altering the shunt function was noted. The swelling was diagnosed as a pseudoaneurysm of the occipital artery and treated by excision of the aneurysm. The child developed isolated dilated fourth ventricle, which was treated by endoscopic fourth ventriculostomy. Traumatic occipital artery pseudoaneurysm as a result of tunneling of VPS catheter is a very rare complication of VPS. Clinical and radiological imaging is diagnostic of the aneurysm. Surgical repair should be considered in such cases. This case report is aimed to raise the awareness among physicians about this rare complication.