Pigmented villonodular synovitis (PVNS) is a benign tumorous condition commonly found in tendon sheathes, bursa, or joint synovium. Unlike the diffuse type which invades the entire synovium of the affected joint, synovium of localized PVNS shows relatively normal appearance. It presents nonspecific symptoms and typically progresses for a long time but acute locking phenomenon or internal derangement of knee symptoms suddenly commence in early stage. In this article, we present a 48-year-old female patient with well-capsulated localized PVNS with intra-capsular hemorrhage occurring from the junction of the mid-body of lateral meniscus and the lateral joint capsule in the knee. It expanded and then moved to the lateral joint space, which caused pain, limitation of knee flexion and locking spontaneously. Arthroscopic complete excision, biopsy, and focal synovectomy were performed with punch and motorized shaver. Full weight-bearing with full knee range of motion was allowed at one day postsurgery. The mechanical symptom of locking and severe pain disappeared. At the clinical follow-up one month post-surgery, the symptoms were no longer present.