Craniopharyngiomas (CPs) are rare, epithelial tumors of the central nervous system (CNS) that could lead to manifestation of multiple post-operative symptoms, ranging from hormonal imbalance to obesity, diabetes, visual, neurological and neurocognitive impairments. CP is more frequent in children, and has been reported in middle aged adults as well. In fact, arterial laceration and/or brain stroke which may occur following the removal of some CPs is mainly due to calcification of that CPs along with strong attachments to the blood vessels. The dense oily fluid content of CPs is reported to cause brain tissue damage, demyelination and axonal loss in the hypothalamus; however, its exact effect on different cell types of CNS is still unexplored. In this study, we have collected CP cyst fluid (CCF) from mostly young patients during surgical removal and exposed it 9–10 days in vitro to the primary cultures derived from rat brain hypothalamus for 48 h. A gradual decline in cell viability was noted with increasing concentration of CCF. Moreover, a distinct degenerative morphological transformation was observed in neurons and glial cells, including appearance of blebbing and overall reduction of the cell volume. Further, enhanced expression of Caspase-3 in neurons and glial cells exposed to CCF by immunofluorescence imaging, supported by Western blot experiment suggest CCF induced apoptosis of hypothalamic cells in culture. In this study, we have demonstrated the deleterious effects of the cyst fluid on various cell types within the tumors originating region of the brain and its surroundings for the first time. Taken together, this finding could be beneficial towards identifying the region specific toxic effects of the cyst fluid and its underlying mechanism.