Cholesterol granuloma is the result of foreign body type response to the deposition of cholesterol crystals in the tissues. It is usually associated with chronic middle ear diseases and the middle ear and mastoid are the most common location for this lesion. Histopathological findings are accumulation of cholesterol clefts, ghost cells, chronic inflammatory cells and giant cells in a fibrous granulation tissue. Cases of cholesterol granuloma have been recently reported in the jaws but still they are few in the literature of dentistry. This article presents a unique case of cholesterol granuloma occurring in the lower lip secondary to a history of trauma.