We report a case of squamous cell carcinoma developed within the nevus sebaceus (NS) and review the literature. An 82-year-old woman presented with a 3-month history of pain within the lifelong skin lesion on her right cheek. Examination revealed a 1.0 x 1.0 cm poorly marginated, slightly raised yellow-brown nodule. Microscopically, the skin nodule revealed the typical findings of NS. Squamous cell carcinoma developed contiguously within the keratin-filled infundibulocyst of NS disconnected from the epidermis. We suggest that squamous cell carcinoma is derived from the embryonal stratum germinativum de-differentiated from the primary epithelial germ cells in the infundibulocyst of NS. Most secondary carcinomas associated with NS grow slowly over a period of years. In contrast, squamous cell carcinoma developed in NS often grow rapidly with aggressive behavior. Thus, the accurate pathologic diagnosis is necessary.