A 4-year-old spayed female German Shepherd Dog was evaluated because of left forelimb lameness. A fungal granuloma on the distal portion of the radius was determined to be the cause of the lameness; the infecting organism was identified as Phialemonium obovatum. Despite aggressive treatment with amphotericin B, itraconazole, and ketoconazole and curettage of the local area, the dog developed systemic disease and was euthanatized 5 months after initial evaluation. Immune dysfunction may have played a role in development of disseminated disease, because although serum concentrations of total IgG, IgA, and IgM were within or greater than reference ranges, results of lymphocyte proliferation assays were abnormal, which indicated cellular immune dysfunction. Infection with Phialemonium obovatum should be considered as a differential diagnosis when branching fungal organisms are detected during histologic, cytologic, or microbiologic evaluation of tissue specimens.