Lipoma arborescens is a rare intra-articular lesion consisting of a villous lipomatous proliferation of the synovial lining. We experienced one case of lipoma arborescens of knee which was associated with avascular necrosis of femoral head. This case report draws the attention to history, physical findings, MR images, pathologic findings and arthroscopic appearance of this rare lesion. Arthro;copically, the lesion appears as a synovial lesion with numerous fatty-appearing globules and villous projections. Although the etiology is unknown, lipoma arborescens has been described in association with osteoarthritis, rheumatoid arthritis and diabetes mellitus. MR imaging is diagnostic choice to differentiate the lesion from rheumatoid arthritis, pigmented villonodular synovitis and synovial chondromatosis in those patients who present with chronic, swollen and painfui joint. Arthroscopic removal was effective in this case and we think that treatment choice of this lesion is arthroscopic removal.