The purpose of this study was to evaluate a minimally invasive subscapularis-preserving arthroscopic release of capsule in the treatment of internal rotation contracture of the shoulder due to Erb’s palsy. We performed our procedure (subscapularis-preserving arthroscopic release of capsule) in 10 paediatric shoulders with an average age of 20.2 months and followed them for an average period of 41.5 months. All the patients were assessed clinically and radiologically preoperatively and postoperatively at regular intervals. The Mallet scoring system was used for analysing the results. The average gain in passive external rotation was 50°. The active internal rotation was preserved in all the cases. With the mid-term follow-up, there was no loss of the gained external rotation or the recurrence of internal rotation contracture of the shoulder. Our hypothesis has achieved its goal in preserving subscapularis, active internal rotation and treatment of internal rotation contracture of the shoulder. The success of this procedure lies in the early identification of starting of internal rotation contracture and early surgical intervention to prevent progressive permanent glenohumeral osseocartilaginous deformity.