This report describes the diagnostic, morbid, anatomical and histopathological features of pyelocalyceal cysts with hydrotic nephritis of the kidney in a 3-year-old boy, and discusses the pathogenesis. Calyceal cysts gave rise to a ‘large blue cystic lobulated kidney’ with microscopic changes in nephrons identifiable as ‘hydrotic nephritic glomerulosclerosis’. Pelvic and calyceal cysts were identifiable by location, number, arrangement, and morbid anatomical and microscopic features of their lining walls. Such cysts may develop due to partial or complete obliterate adhesions at the uretero-pelvic and pyelocalyceal junctions. Patent calyceo-tubulonephric junctions in such cases may give rise to hydrotic nephritis. Pyelocalyceal cystic disease with hydrotic nephritis of the kidney needs to be distinguished from megacalycosis and hydronephrosis and deserves recognition. Observations in this case may provide the basis for future classifications of cystic renal diseases.