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Background: Accurate diagnosis of the lateral extent of early gastric cancer during endoscopic submucosal dissection (ESD) is crucial to achieve negative resection margins. Similar to intraoperative consultation with a frozen section in surgery, rapid frozen section diagnosis with endoscopic forceps biopsy may be useful in assessing tumor margins during ESD. This study aimed to evaluate the diagnostic accuracy of frozen section biopsy. Methods: We prospectively enrolled 32 patients undergoing ESD for early gastric cancer. Biopsy samples for the frozen sections were randomly collected from fresh resected ESD specimens before formalin fixation. Two different pathologists independently diagnosed 130 frozen sections as “neoplasia,” “negative for neoplasia,” or “indefinite for neoplasia,” and the frozen section diagnosis was compared with the final pathological results of the ESD specimens. Results: Among the 130 frozen sections, 35 were from cancerous areas, and 95 were from non-cancerous areas. The diagnostic accuracies of the frozen section biopsies by the two pathologists were 98.5 and 94.6%, respectively. Cohen’s kappa coefficient of diagnoses by the two pathologists was 0.851 (95% confidence interval: 0.837–0.864). Incorrect diagnoses resulted from freezing artifacts, a small volume of tissue, inflammation, the presence of well-differentiated adenocarcinoma with mild nuclear atypia, and/or tissue damage during ESD. Conclusions: Pathological diagnosis of frozen section biopsy is reliable and can be applied as a rapid frozen section diagnosis for evaluating the lateral margins of early gastric cancer during ESD.