Peroneal nerve injuries have been reported in association with various causes around the knee such as traumatic varus injury, traumatic dislocation, upper tibial osteotomy, knee arthroscopy and total knee arthroplasty. Two instances of varus arthritic knee associated with a peroneal nerve palsy have been reported so far. One presented with gradual onset peroneal nerve palsy that recovered with time and the other with sudden onset peroneal nerve palsy that did not recover. We describe the case of a 63-year-old man who presented with a symptomatic varus arthritic knee and sudden onset peroneal nerve palsy with synovial cysts over the lateral aspect of the knee. We performed a total knee arthroplasty with decompression of the synovial cyst in the same patient. Three months following the surgery the patient was walking pain free with a completely recovered nerve palsy.