Subcutaneous palisading granulomas (SPG), also known as benign rheumatoid nodules, occur in otherwise healthy children. Although these lesions have the same histology as rheumatoid nodules in adults, subcutaneous granuloma annulare, and diabetic lipoidicum, they appear to represent a distinct clinicopathologic entity. We reviewed our experience with 17 cases of SPG. All patients presented with one or more painless, nonmobile, subcutaneous nodules. Lower extremity involvement was most common, but lesions presented in the upper extremities and scalp as well. There were 14 girls and three boys ranging in age from 10 months to 15 2/12 years (mean, 4 5/12 years) at the time of diagnosis. Past medical histories were negative. Laboratory and radiologic studies were normal except for one child with an elevated erythrocyte sedimentation rate (ESR). The follow-up period ranged from 6 months to 14 10/12 years (mean, 4 11/12 years). Subsequent new lesions developed in nearly two thirds of the patients. In the one child with an initially elevated ESR, rheumatoid arthritis developed. All others were alive and well except for one who died in a motor vehicle accident without evidence of further disease. Preoperative diagnosis was correct in only three patients. Excisional biopsy was performed in all cases. However, one child had received prior radiation therapy, one received topical steroid therapy, and three patients had subsequent lesions excised. All subsequent lesions not surgically excised underwent spontaneous involution.(ABSTRACT TRUNCATED AT 250 WORDS)