The histopathologic findings in 331 cases of necrobiosis lipoidica diabeticorum seen during a 50‐year period were reviewed. Three cases showing cholesterol cleft formation were found. All 3 cases were associated with severe diabetes mellitus. The differential diagnosis of importance is necrobiotic xanthogranuloma. Common features included extensive hyaline necrobiosis and foreign‐body giant cells. Atypical and Touton‐typc giant cells are more common in necrobiotic xanthogranuloma. Vascular changes in necrobiotic xanthogranuloma may include granulomatous involvement of muscular walls with thrombosis. Explanations for cholesterol cleft formation arc offered. When cholesterol clefts are seen in biopsy specimens of necrobiosis, necrobiotic xanthogranuloma must be ruled out. In addition, when found in necrobiosis lipoidica diabeticorum, these clefts may imply diabetes mellitus with complica