Mycoplasma pneumoniae has been associated with respiratory tract infections. Mycoplasma pneumoniae pneumonia-related pleural effusion is rarely reported. Extra-pulmonary abnormalities such as encephalitis, myocarditis, glomerulonephritis, and myringitis have been reported. However pulmonary manifestations in systemic lupus erythematosus include pneumonitis, pleurisy, interstitial lung disease, and thromboembolic disease. We present the case of a 26-year-old male who came for evaluation of fever, cough, and shortness of breath with right-sided chest pain. He was found to have right-side loculated complicated parapneumonic effusion and underwent drainage with a pleural catheter followed by fibrinolytic therapy. He was then found to have new-onset systemic lupus erythematosus concomitant with Mycoplasma pneumonia, leading to lupus flare and lupus nephritis. He responded well to levofloxacin, steroids, hydroxychloroquine, and mycophenolate, with complete resolution of loculated pleural effusion and symptom improvement. Our case describes the rare combination of Mycoplasma pneumoniae pneumonia, parapneumonic pleural effusion, and lupus flare with lupus nephritis. Early identification and treatment can lead to better out come in young patients.