Mature cystic ovarian teratomas (MCOT) are the most common ovarian neoplasm and contain components of one or more embryonic germ cell layers. Ectodermal components are most common. Rarely (1–3%), malignant transformation can occur in MCOT and are usually epidermoid, although multiple case reports of melanomas have been described. Four compound nevi and three blue nevi have also been reported; however, atypical (dysplastic) nevi have not been reported to our knowledge. A 28‐year‐old woman presented with a right ovarian mass. A 5 × 4 × 2.5 cm cystic ovarian mass was filled with hair and grumous keratinaceous debris. The lining was smooth with a 1 cm dark macule. Histologically, the mass was predominantly lined by epidermis and appendages. The pigmented lesion consisted predominantly of melanocytic nests irregularly disposed on sides and tips of distorted rete ridges, some with bridging between adjacent rete ridges, and junctional extension lateral to the small dermal component of nevus. Slight fibrosis invested some rete ridges. Moderate atypia was present. Although melanomas and melanocytic nevi have rarely been described previously in MCOT, we present the first atypical (dysplastic) compound nevus, to our knowledge. This case expands the spectrum of melanocytic lesions arising in MCOT.