Nevus sebaceous is a hamartoma with an uneventful course since birth but many benign or malignant tumors are known to develop in about one third of the patients. A 37-year-old woman with asymptomatic hairless raised lesion over the scalp since birth presented with change in the morphology of the lesions associated with itching and irritation since one month. On examination, multiple well-defined hyperpigmented verrucous plaques coalescing with each other were seen over the right parietal scalp associated with alopecia. A single well-defined soft skin-colored cystic swelling of size 1 × 2 cm was seen interspersed within the plaque. After a clinical diagnosis of nevus sebaceous, a biopsy of the cyst was done, which revealed a large cyst lined by columnar and myoepithelial cells in the dermis. The columnar cells at a few places showed “decapitation secretion” giving the impression of apocrine hidrocystoma. Post-excision of the cyst, biopsy of the entire nevus was done and the histopathological diagnosis correlated with the clinical diagnosis of nevus sebaceous. Apocrine hidrocystoma developing from a sebaceous nevus over the scalp is a rarity with only three other cases of it arising on the scalp being reported and none of them developed from a sebaceous nevus.