Impacted mandibular third molars can sometimes lead to the development of dentigerous cysts. In many cases, bone destruction is seen. In some cases, the bone destruction may extend beyond the cortical bone. In the present case, extracortical bone destruction was noted, and newly formed ossifying tissue was noted over the extracortical region. Due to the nature of the lesion, pathological diagnosis was difficult. This case report describes a case of periosteal reaction arising outside the cortical bone of the mandible with a combined cystic lesion of a 12-year-old male child who was treated with surgery. Clinical, radiographical, surgical and histological findings are presented.