Abstract. In the present study attempt was made for preparation of isotretinoin-hydroxypropyl β cyclodextrin (HP-β-CD) inclusion complex and encapsulate this complex in elastic liposomes to study the effect of dual carrier approach on skin targeting of isotretinoin. The isotretinoin HP-β-CD complex was prepared by freeze-drying method and characterized by IR spectroscopy. The drug and drug-CD complex loaded elastic liposomal formulation were prepared and characterized in vitro, ex-vivo and in vivo for shape, size, entrapment efficiency, no. of vesicles per cubic mm, in vitro skin permeation and deposition study, photodegradation and skin toxicity assay. The transdermal flux for different vesicular formulations was observed between 10.5±0.5 to 13.9±1.6 μg/cm 2 /h. This is about 15-21 folds higher than that obtained from drug solution (0.7 ±0.1 μg/cm 2 /h) and 4-5 folds higher than obtained with drug-CD complex solution (2.7±0.1 μg/cm 2 /h). The amount of drug deposit was found to increase significantly (p<0.05) by cyclodextrin complexation (30.1±0.1 μg). The encapsulation of this complex in elastic liposomal formulation further increases its skin deposition (262.2 ±21 μg). The results of skin irritation study using Draize test also showed the significant reduction in skin irritation potential of isotretinoin elastic liposomal formulation in comparison to free drug. The results of the present study demonstrated that isotretinoin elastic liposomal formulation possesses great potential for skin targeting, prolonging drug release, reduction of photodegradation, reducing skin irritation and improving topical delivery of isotretinoin.