An in vitro technique was developed to study the permeation and antimicrobial activity of graded concentrations of a new antibacterial agent, chlorhexidine phosphanilate (CHP), in cream formulations using Franz diffusion cells. Formulations containing from 0.2 to 2% CHP were quantitatively applied to intact excised skin and to skin from which the stratum corneum and partial epidermis had been enzymatically removed. Receptor fluids from diffusion cells were sampled over time and assayed by HPLC methods for chlorhexidine and phosphanilic acid; 24- and 48-hr samples of the diffusate from studies with damaged skin were also bioassayed using clinical isolates of appropriate microbial species. Through intact skin almost no permeation of CHP was observed over 48 hr. The failure of CHP to penetrate intact human skin suggests that normal stratum corneum is the rate-limiting barrier to penetration by this antimicrobial agent. In damaged skin lacking stratum corneum barrier, the release of CHP from the formulation becomes the rate-determining step. Coincident with penetrating damaged skin, CHP dissociates, and the molar ratio of the chlorhexidine and phosphanilate moities in the diffusate changes to favor phosphanilic acid. The extent of changes in the permeation rates of both moieties of CHP was directly related to the CHP concentration in cream. Both CHP moieties were found to reach equilibrium in the dermis within 24 hr after application. It was also observed that CHP creams down to 0.2% concentration yielded diffusates with activity exceeding the minimum inhibitory concentration of all test microorganisms within 24 hr.