Purpose: Topical administration is the preferred route of drug delivery for ophthalmic ailments. However, poor permeation through ocular surface and significant systemic absorption, makes the topical drug delivery challenging. Furthermore, distribution of topically delivered drugs varies with their physicochemical properties and the type of formulation used. Hence, this study was done to understand the pattern of ocular drug distribution of topically applied hydrophilic and lipophilic substances in two different formulations. Methods: 5-Carboxyfluorescein and 1,1 0 -dioctadecyl-3,3,3 0 ,3 0 -tetramethylindocarbocyanine perchlorate were used as representative candidates for hydrophilic and lipophilic substances, respectively. They were formulated in solution and liposomes. Single drop of either formulation containing hydrophilic or lipophilic substance was instilled topically, unilaterally to rat eyes. Subsequently, rats were sacrificed at 10, 30 and 120 min post-instillation. Eyes were cryosectioned and examined under confocal microscope to determine the fluorescence intensity in ocular tissues. Results: Corneal permeation of hydrophilic and lipophilic substances in both formulations peaked at 30 min post-instillation. Liposomal-lipophilic dye and non-liposomal-hydrophilic dye showed better corneal distribution. Fluorescence was absent in contralateral eyes of non-liposomalhydrophilic dye-treated animals but was present in contralateral eyes of liposomal-hydrophilic dye-treated animals. Fluorescence in contralateral eyes of liposomal-lipophilic dye-treated animals was significantly higher compared to non-liposomal-lipophilic dye-treated animals. Conclusions: Topically applied liposomal formulation of lipophilic substance provides higher corneal concentration of drug with lesser systemic absorption compared to its solution. For hydrophilic substance, topical use of solution provides greater corneal concentration compared to liposomes which is more likely to be absorbed systemically.