Nevi can show a polypoid appearance both clinically and histologically. Anecdotally, polypoid compound melanocytic nevus may exhibit a spectrum of junctional architectural and cytologic atypia, at times creating a diagnostic challenge by mimicking the radial growth phase of melanoma. To investigate this issue, we prospectively reviewed 40 polypoid compound melanocytic proliferations without overt malignant features. The lesions frequently occurred in young female patients and were predominantly from the trunk and intertriginous areas. Commonly observed atypical features included asymmetry (30%), shouldering (47.5%), poor circumscription (37.5%), and deep extension of melanocytes along the adnexal structures (67.5%). Severe cytologic junctional atypia (22.5%), dermal mitoses (10%), and pagetoid spread of melanocytes (5%) were less commonly seen. All lesions showed a reassuring dermal component with negligible cytologic atypia and maturation with depth. Overall, 7 lesions could not be readily classified as benign nevus; 5 of these in which a benign diagnosis was strongly favored were classified as atypical polypoid compound melanocytic nevi, whereas 2 lesions with diffuse severe junctional cytologic atypia and dermal mitoses were classified as ambiguous melanocytic proliferations. Atypical/ambiguous lesions were significantly larger and predominantly located in the axilla and groin. On molecular studies, none of the lesions tested showed the molecular profile of melanoma. We confirmed that polypoid compound melanocytic nevus can exhibit a variable degree of junctional atypia, likely related to frequent episodes of trauma and regeneration resulting in melanocytic proliferation. Pathologists should be aware of this phenomenon to avoid overdiagnosis.