As a new potential cure for diabetes, induced pluripotent stem cells (iPSCs) are characterized by self-renewal capacity and the ability to differentiate into pancreatic islet β-cells, which will hopefully secrete insulin and rebuild blood glucose balance. The safety and validity of iPSC treatment for diabetes remain controversial. One of the most serious risks is teratoma formation arising from undifferentiated stem cells, but clinical reports are rare. Here, we report a distinctive case of immature teratoma after iPSC treatment for diabetes, which was accidentally treated in our soft tissue sarcoma centre. The patient received islet β-cell injection, in which the cells were differentiated from autologous iPSCs, into the deltoideus muscle. Two months later, a mass located in the injection area formed with enlarged axillary lymph nodes. Here, we present the different clinical, radiological and pathological features of this immature teratoma in detail. Distinctive from typical immature teratomas, the tumour was characterized by rapid growth and local lymph node metastasis. The tumour was not sensitive to typical chemotherapy regimens for immature teratomas. MRI scanning showed heterogeneous enhancement and a rich blood supply to the tumour. The histopathology showed immature endoderm, mesoderm and ectoderm tissues composed of osseous, cartilaginous, vascular and adenoid tissues, which have more cellular atypia than typical teratomas. Staining for both Oct-4 and Sox-2 was positive in the tumour cell nucleus by immunofluorescence assay, but insulin staining was negative. Next-generation sequencing showed many missense mutations, but abnormal gene rearrangement or copy number was not observed. In conclusion, more attention should be given to teratoma formation after iPSC treatment for diabetes, which is more aggressive than typical teratomas. The safety and validity of iPSC treatment for diabetes should be confirmed by more standardized clinical trials.