A dermoid cyst is a teratoma of a cystic nature that contains an array of developmentally mature, solid tissues. It frequently consists of skin, hair follicles, and sweat glands, while other commonly found components include clumps of long hair, pockets of sebum, blood, fat, bone, nail, teeth, eyes, cartilage, and thyroid tissue. As dermoid cysts grow slowly and contain mature tissue, this type of cystic teratoma is nearly always benign. In those rare cases wherein the dermoid cyst is malignant, a squamous cell carcinoma usually develops in adults, while infants and children usually present with an endodermal sinus tumor. : 781

Location
Due to its classification, a dermoid cyst can occur wherever a teratoma can occur. Vaginal and ovarian dermoid cysts
Ovaries normally grow cyst-like structures called follicles each month. Once an egg is released from its follicle during ovulation, follicles typically deflate. Sometimes fluid accumulates inside the follicle, forming a simple (containing only fluid) cyst. The majority of these functional cysts resolve spontaneously.While all ovarian cysts can range in size from very small to quite large, dermoid cysts are not classified as functional cysts. Dermoid cysts originate from pluripotent germ cells (which are present at birth) that differentiate abnormally, developing characteristics of mature dermal cells. Complications exist, such as torsion (twisting), rupture, and infection, although their incidence is rare. Dermoid ovarian cysts which are larger present complications which might require removal by either laparoscopy or laparotomy (traditional surgery). Rarely, a dermoid cyst can develop in the vagina.
Spinal dermoid cysts
Spinal dermoid cysts are benign ectopic growths thought to be a consequence of embryology errors during neural tube closure. Their reported incidence is extremely rare, accounting for less than 1% of intramedullary spinal cord tumours. It has been proposed that a possible 180 cases of spinal dermoid tumours have been identified over the past century in the literature.Dermoid cysts more often involve the lumbosacral region than the thoracic vertebrae and are extramedullary presenting in the first decade of life. Various hypotheses have been advanced to explain the pathogenesis of spinal dermoids, the origin of which may be acquired or congenital. Acquired or iatrogenic dermoids may arise from the implantation of epidermal tissue into the subdural space i.e. spinal cutaneous inclusion, during needle puncture (e.g. lumbar puncture) or during surgical procedures on closure of a dysraphic malformation. Congenital dermoids, however, are thought to arise from cells whose position is correct but which fail to differentiate into the correct cell-type. The long-time held belief was that the inclusion of cutaneous ectodermal cells occurred early in embryonic life, and the displaced pluripotent cells developed into a dermoid lesion.Spinal abnormalities, e.g. intramedullary dermoid cysts may arise more frequently in the lumbosacral region (quite often at the level of the conus medullaris) and may be seen with other congenital anomalies of the spine including posterior spina bifida occulta as identified by the neuroradiological analysis. Diagnosis
Differential diagnosis
A small dermoid cyst on the  coccyx can be difficult to distinguish from a pilonidal cyst.