Using a two-dimensional hybrid simulation, we study the physics of the interaction of the solar wind with a localized magnetic field concentration, or “magcon,” on the Moon. Our simulation treats the solar wind protons kinetically and the electrons as a charge-neutralizing fluid. This approach is necessary because the characteristic scale of the magcon is of the same order or smaller than the proton inertial length—the characteristic scale in the hybrid simulation. Specifically, we consider a case in which the incident solar wind flows exactly normal to the lunar surface, and the magcon is represented by a simple dipole whose moment is parallel to the surface, with a center just below it. We find that while the magcon causes the solar wind to be deflected and decelerated, it does not completely shield the lunar surface anywhere. However, protons which impact the surface in the center of the magnetic anomaly have energies well below the solar wind ram energy. Thus, in this region, any backscattered neutral particles resulting from the interaction of solar wind protons with the lunar regolith would have energies lower than that of the solar wind. Moreover, very few neutrals, if any, would emanate from within the magcon with energies comparable to the solar wind energy. This may explain recent observations of lunar energetic neutral atoms associated with a strong crustal magnetic anomaly. Our study also finds that a significant fraction of the incoming solar wind protons are reflected back into space before reaching the surface. These particles are reflected by a strong electrostatic field which results from the difference in the proton and electron inertia. The reflected particles are seen at very high altitudes above the Moon, over 200 km, and over a much broader spatial scale than the magcon, several hundred kilometers at least. Our simulation also revealed a second population of reflected particles which originate from the side of the magcon where the interplanetary and magcon magnetic fields are directed opposite to one another, leading to a magnetic topology much like magnetic reconnection. As previously reflected particles move through this region, they are deflected upward, away from the surface, forming a second component. Our simulation has a number of similarities to recent in situ spacecraft observations of reflected ions above and around magcons.