Well-differentiated liposarcoma represents a radiographic diagnostic dilemma. To determine the accuracy, interrater reliability, and relationship of stranding, nodularity, and size in the MRI differentiation of lipoma and well-differentiated liposarcoma, MRI scans of 60 patients with large (>5 cm), deep, pathologically proven lipomas or well-differentiated liposarcomas were examined by 10 observers with subspecialty training blinded to diagnosis. Observers indicated whether the amount of stranding, nodularity, and size of each tumor suggested a benign or malignant diagnosis and rendered a diagnosis of lipoma or well-differentiated liposarcoma. The accuracy, reliability, and relationship of stranding, nodularity, and size to diagnosis were calculated for all samples. 69% of reader MRI diagnoses agreed with final pathology diagnosis (95% CI 65-73%). Readers tended to err choosing a diagnosis of liposarcoma, correctly identifying lipomas in 63% of cases (95% CI 58-69%) and liposarcomas in 75% of cases (95% CI 69-80%). Assessment of the relationship of stranding, nodularity, and size to correct diagnosis showed that the presence of each was associated with a decreased likelihood of a lipoma pathological diagnosis (P < 0.01). While the radiographic diagnosis of lipoma or well-differentiated liposarcoma cannot be made with 100% certainty, experienced observers have a 69% chance of rendering a correct diagnosis.