Abstract. Formulation of a new oil-in-water (o/w) microemulsion composed of castor oil/Tween 80/ ethanol/phosphate buffer for enhancing the loading capacity of an anti-inflammatory drug piroxicam has been accomplished. The pseudo-ternary phase diagram has been delineated at constant surfactant/ cosurfactant ratio (1:2). The internal structure of so created four-component system was elucidated by means of an analysis of isotropic area magnitudes in the phase diagram. Conductivity (σ), kinematic viscosity (k η ), and surface tension (γ) studies with the variation in Φ w (weight fraction of aqueous phase) show the occurrence of structural changes from water-in-oil (w/o) microemulsion to oil-in-water (o/w). Along with the solubility and partition studies of piroxicam in microemulsion components, the changes in the microstructure of the microemulsion after incorporation of drug have been evaluated using pH, σ, γ, k η , and density studies. Piroxicam, a poorly water-soluble drug displayed high solubility (1.0%) in an optimum microemulsion formulation using ethanol (55.0%), Tween 80 (26.5%), castor oil (7.5%), and phosphate buffer (11.0%). The results have shown that the microemulsion remained stable after the incorporation of piroxicam. Fluorescence spectra analysis taking pyrene as fluorescent probe was performed, and the results showed that pyrene was completely solubilized in the oil phases of the bicontinuous microemulsions. The fluorescence spectrum of the model drug piroxicam was used to probe the intramicellar region of nonionic microemulsion. The results showed that the piroxicam was localized in the interfacial film of microemulsion systems more deeply in the palisade layer with ethanol as the cosurfactant.