An 8-year-old Warmblood gelding used for dressage presented with a large swelling on the craniomedial aspect of the left stifle. Conservative treatment and needle drainage had been unsuccessful. Ultrasonographic examination revealed a large anechogenic fluid filled cavity with a well-defined capsule. Standing endoscopic examination revealed separation between the deep crural fascia, the semitendinosus muscle and skin. Cytologic examination of the fluid collected revealed lymphocyte-rich transudate associated with a fibrous inflammatory reaction. Due to the poor response to conservative management and needle drainage, in-toto excision of the capsule was performed under general anaesthesia. Histopathologic examination of the resected capsule identified the presence of dense fibrovascular tissue lining a cavitated structure, with an outer thin zone of adipose connective tissue. These findings combined with the clinical presentation are consistent with Morel-Lavallee lesion (MLL). After surgery the horse underwent a period of box rest; gradual reintroduction to exercise was started 6 months after surgery. The horse returned to full work 9 months after surgery and was able to return to its former athletic function with an excellent cosmetic outcome.