Appropriate differentiation between epidermoid-dermoid and arachnoid cysts is important for patient management. MRI has had limitations in differentiating these two types of cysts, especially in the region of the spinal cord. To evaluate the role of diffusion-weighted (DW) MRI for differentiation between spinal arachnoid and epidermoid-dermoid cysts. Four children underwent conventional and DW MRI. Turbo spin-echo imaging was used to obtain DW images. On conventional MRI, low T1-W and high T2-W signal was present in all lesions. DW imaging showed restricted diffusion in two patients with epidermoid-dermoid cysts and no water restriction in two patients with arachnoid cysts. Three of four children had extramedullary lesions and one patient had an intramedullary lesion. Three children had surgery, two with epidermoid-dermoid cysts and one with arachnoid cyst. Diagnosis was confirmed by histopathology. One child with a thoracic arachnoid cyst had stable clinical imaging findings during a follow-up of 21 months. On conventional MRI, epidermoid-dermoid and arachnoid cysts have similar signal characteristics. Initial experience with spine DW imaging shows promise in differentiating epidermoid-dermoid cysts from arachnoid cysts. Preoperative differentiation is important because it changes management and surgical approach.