Lipoblastic nerve sheath tumor is a recently described benign soft tissue tumor consisting of lipoblasts in a neural/schwannian background. The 6 reported cases have exclusively comprised signet ring lipoblasts and showed no cellular atypia. The authors describe the first lipoblastic nerve sheath tumor to harbor multivacuolated lipoblasts and degenerative atypia, underscoring its important differential diagnosis with well-differentiated liposarcoma. The purpose of this report is to expand the morphologic spectrum of this unusual neoplasm, and reemphasize the potential of benign nonadipocytic tumors to harbor multivacuolated lipoblasts and mimic liposarcoma.