Hydatid disease is a parasitic infection which occurs in specific geographical areas such as the Mediterranean region. We report a case of hydatid cyst of the knee in a 34-year-old man who was admitted with inability to walk and a painful knee. He had a past history of liver infection nine years ago. Laboratory findings were negative. According to the high prevalence of hydatid disease in Iran, it should be considered as a differential diagnosis of Baker's cyst, synovial cyst and lipoma.