A novel pigmented dermatosis was observed in four unrelated boys, three of whom had insulin-dependent diabetes. Three patients were the offspring of consanguineous parents. All four boys had pigmented hypertrichotic patches or induration on the upper inner thighs, with variable involvement of the genitalia, trunk, and limbs. Two boys had episcleritis and orbital proptosis with similar facies and musculoskeletal abnormalities including clinodactyly, flat feet, and short stature. One child had paraaortic and inguinal lymphadenopathy and three patients had an enlarged liver and spleen. A large, swollen pancreas was observed on ultrasound imaging in one patient with insulin dependent diabetes who also had echocardiographic evidence of pericardial inflammation. Three boys had elevated laboratory markers of inflammation. Biopsy specimens from the skin and orbit showed a chronic inflammatory cell infiltrate composed of polyclonal lymphocytes, histiocytes, and plasma cells; fibrosis was observed in two patients, one of whom had previously received radiation therapy to the orbit. Two boys responded to treatment with subcutaneous interferon-alpha, combined with a short course of oral prednisone in the child without diabetes. We believe these inflammatory pigmented skin lesions represent a unique dermatosis associated with diabetes mellitus and systemic disease. The pathogenesis is unknown. The presence of consanguinity in three of four families, and similar dysmorphic features in two boys, suggest a genetic disorder, possibly with autosomal recessive inheritance.