This study defines the behavior and classification of atypical lipomatous tumors (ALT) and well-differentiated liposarcomas (WDLS) of the extremity and trunk. A total of 91 well-differentiated lipomatous tumors of the extremity and trunk were identified from a soft tissue tumor database between July 1982 and June 2001. A soft tissue pathologist, blinded to prior diagnosis and clinical outcome, reviewed histology. Those composed predominantly of mature adipose tissue with scattered atypical stromal cells and scant lipoblasts or fibrosis were ALTs. Tumors with lipoblasts but <25% fibrosis were termed lipoma-like WDLS, and those with >/=25% fibrosis were identified as sclerosing WDLS. Clinical factors were analyzed to assess effects on local recurrence-free survival (LRFS). Histological review identified 34 ALTs and 57 WDLSs. Of the WDLSs, 29 were lipoma-like and 28 were sclerosing. Five-year and 10-year LRFS were 100% +/- 0% and 78% +/- 9%, respectively. Factors evaluated were age, sex, tumor site, tumor size, histology, presentation status, margin status, and adjuvant radiotherapy. Positive resection margins and sclerosing histology were associated with reduced LRFS. Dedifferentiation was observed in three tumors (3%). Lipoma-like WDLSs and ALTs share similar histological features and favorable behavior. Margin-positive sclerosing WDLSs have a 10-year LRFS of only 17% and should undergo function-preserving re-excision when possible, or adjuvant radiotherapy.