Malignant tumours arising at the site of closed neural tube defects are extremely rare and have only been described three times in the literature. We report the case of a child with a congenital lumbosacral lipoma, a dermal sinus tract and low-lying spinal cord who was initially treated non-operatively due in part to non-attendance and who then presented at 2 years of age with recurrent urinary tract infections with intermittent pyrexia, back pain and difficulty walking. A craniospinal MRI was performed with suspicion of infection at the site of the closed neural tube defect (in view of the dermal sinus tract) and leptomeningeal spread to the rest of the spine and brain. An urgent lumbar laminectomy for untethering of the spinal cord and washout under intraoperative neuro-monitoring was performed. A solid mass was encountered in the lumbosacral canal and debulked. It was initially thought to represent solid granulomatous inflammatory tissue. Histopathological examination was, however, consistent with embryonal rhabdomyosarcoma. After multidisciplinary team discussion, chemotherapy was initiated. She developed hydrocephalus which required treatment initially endoscopically and later with a shunt. Unfortunately, she passed away 69 days after diagnosis due to disease progression despite chemotherapy. Rhabdomyosarcomas at the site of a lipomatous malformation are extremely rare and may arise from striated muscle cells within the lipoma. The underlying mechanisms are unclear. Urgent repeat imaging in patients with lipomas and rapid deterioration is essential to rule out this rare but devastating phenomenon.