Parosteal lipoma is an unusual kind of lipoma and occurs in intimate association with the underlying periostium of the bone. Parosteal lipomas mostly affect the long bones and involvement of the mandible is rare. We report a case of ossifying parosteal lipoma of the mandible in which CT was effective in diagnosis and showed a well-circumscribed mass of fat attenuation containing areas of ossification and branch-like bony protuberances from adjacent cortical bone. Microscopic examination revealed that the mass was composed of mature fat cells without nuclear hyperchromasia or atypia. Layers of bone and ossification were found inside. Although rare, it should be considered as a differential diagnosis of teratoma, osteochondroma and osteosarcoma.