Background <p>Atypical lipomatous tumors (ALTs) can recur locally but do not metastasize. Surgical treatment risks morbidity, recurrence, and dedifferentiation. This study assessed the outcomes of initial surveillance or surgery for patients with ALT.</p> Methods <p>Patients with ALT diagnosed between 2005 and 2022 were retrospectively identified from surgical and radiologic databases. Adults with primary or locally recurrent (LR) ALT confirmed by imaging, histology, or both and managed with surveillance for 12 months or longer were included in the surveillance study cohort. The primary outcome was the development of dedifferentiation during surveillance. The secondary outcomes were tumor progression, imaging-histopathology concordance, motives for surgery, and surgical outcomes. A comparison cohort included patients who had ALT treated with upfront surgery.</p> Results <p>The 36 patients (median age, 63 years; IQR, 52–69 years) in this study underwent surveillance for a median of 26 months (IQR, 19–54 months). Most of the tumors were primary (81%) and located in the lower extremities (78%). Tumor progression (RECIST) occurred in 22 patients (61%). Three patients (8%) experienced dedifferentiation (2 with the diagnosis by imaging alone at baseline and 1 with an LR). No dedifferentiation occurred in the remaining 33 patients (92%). Magnetic resonance imaging suggested dedifferentiation in five cases, histologically confirmed in two cases. Among 147 patients initially treated surgically for ALT, 15 (10%) had LR, with 3 (20%) of these patients experiencing recurrence as dedifferentiated liposarcoma. No disease-related metastases or deaths occurred.</p> Conclusion <p>Initial surveillance for ALT appears feasible for selected patients. However, surgery remains the preferred treatment for many, and the short follow-up period and small cohort size limited definitive conclusions regarding long-term dedifferentiation risk. Histologic confirmation remains essential when MRI findings are atypical.</p>