Here, we report an exceptionally rare event of malignant transformation of an intracranial epidermoid cyst into squamous cell carcinoma (SCC), diagnosed through cerebrospinal fluid cytology. A 61-year-old male with a prior history of left retrosigmoid craniotomy and partial resection of a large cerebellopontine angle epidermoid tumor 13 years ago presented with acute mental status changes and weakness. Imaging revealed recurrent epidermoid cyst elements with associated obstructive hydrocephalus. The patient underwent ventriculoperitoneal shunt placement, and cerebrospinal fluid cytology revealed clusters of atypical epithelial cells. Further cytopathological and immunohistochemical (IHC) evaluation confirmed a diagnosis of SCC. Despite the initiation of chemotherapy and immunotherapy, the patient's condition deteriorated, and he passed away 2 months later. This case highlights the need for vigilance in monitoring patients with epidermoid cysts and that early detection through CSF cytology with confirmatory IHC provides a minimally invasive diagnostic pathway to guide rapid clinical decision-making.