Dermatofibroma (DF) or cutaneous fibrous histiocytoma is a common benign skin tumor that exhibits multiple, distinct histologic variants. Although clear cell DF has been described in the literature, balloon cell degeneration causing a clear cell DF phenotype has been not been reported to date. Herein, we describe the clinicopathologic findings of balloon cell DF arising on the heel of a 43-year-old man. Clinically, it presented as enlarging tan-white, ulcerated, firm 1.5 cm nodule, clinically suspected to be pyogenic granuloma. Excisional biopsy revealed a circumscribed fibrous tumor populated by mostly clear and spindle cells. A zonal arrangement separated the varied tumor cells where the most superficial, polypoid area showed large, clear polygonal balloon cells; the mid-dermal zone demonstrated a transition between balloon cells, epithelioid cells, and spindle cells; and the deep dermal zone had storiform arrangement of spindle cells, with the fascicles separated by coarse collagen bundles. A CD10+ > CD68+ > Factor XIIIa+ immunophenotype was identified with negative immunolabeling for S-100 protein, HMB-45, cytokeratin AE1/AE3, desmin, smooth muscle actin, lysozyme, and leukocyte common antigen (LCA). Ultrastructurally, the clear tumor cells were filled with multiple, empty, nonmembrane bound vacuoles of varying size. No recurrence has been described after complete excision and 7 months of follow up. DF with balloon cell change, likely secondary to persistent irritation, should be added to the differential diagnosis of cutaneous primary and metastatic neoplasms showing balloon cell degeneration such as balloon cell melanocytic nevi and renal cell carcinoma, respectively.