Paraurethral cysts that are among interlabial masses occurring in female neonates are quite rare. Although they usually appear as simple cysts the case presented in this paper had a complicated cyst with hydronephrosis. When an interlabial mass is detected in newborn girls or young female children, the differential diagnosis should include imperforated hymen, hydro (metro) colpos, urethral prolapsus, ureterocele prolapsus and rhabdomyosarcoma of the vagina in addition to paraurethral cyst. In previous studies, while surgical treatment of the cyst was recommended immediately, the recent trend is conservative approach as the lesion disappears spontaneously in some cases. Genital area of the newborns should be examined carefully due to the difficulty of recognizing rare lesions. Although differentiation of these lesions is sometimes quite difficult, relationship of the urethra with the mass allows the recognition of characteristics of the mass lesion. Our patient showed that a simple paraurethral cyst might lead to severe hydroureteronephrosis.