Borneol is a natural permeation enhancer that is effective in drugs used in traditional clinical practices as well as in modern scientific research. However, its molecular mechanism is not fully understood. In this study, a mixed coarse-grained model of stratum corneum (SC) lipid bilayer comprised of Ceramide-N-sphingosine (CER NS) 24:0, cholesterol (CHOL) and free fatty acids (FFA) 24:0 (2:2:1) was used to examine the permeation enhancing mechanism of borneol on the model drug osthole. We found two different mechanisms that were dependent on concentrations levels of borneol. At low concentrations, the lipid system maintained a bilayer structure. The addition of borneol made the lipid bilayer loosen and improved drug permeation. The “pull” effect of borneol also improved drug permeation. However, for a strongly hydrophobic drug like osthole, the permeation enhancement of borneol was limited. When most borneol molecules permeated into bilayers and were located at the hydrophobic tail region, the spatial competition effect inhibited drug molecules from permeating deeper into the bilayer. At high concentrations, borneol led to the formation of water pores and long-lived reversed micelles. This improved the permeation of osthole and possibly other hydrophobic or hydrophilic drugs through the SC. Our simulation results were supported by Franz diffusion tests and transmission electron microscope (TEM) experiments.