TDT 067 is a novel, carrier-based dosage form of terbinafine in Transfersome (1.5%) formulated for topical delivery of terbinafine to the nail, nail bed, and surrounding tissue. We examined the effects of TDT 067 and conventional terbinafine on the morphology of dermatophytes. Trichophyton rubrum hyphae were exposed to TDT 067 or terbinafine (15 mg/ml) and examined under white light, scanning electron microscopy (SEM), and transmission electron microscopy (TEM). Subungual debris from patients treated with TDT 067 in a clinical trial was also examined. Exposure of T. rubrum hyphae to TDT 067 led to rapid and extensive ultrastructural changes. Hyphal distortion was evident as early as 4 h after exposure to TDT 067. After 24 h, there was complete disruption of hyphal structure with few intact hyphae remaining. Exposure to terbinafine resulted in morphological alterations similar to those seen with TDT 067; however, the effects of TDT 067 were more extensive, whereas a portion of hyphae remained intact after 24 h of exposure to terbinafine. Lipid droplets were observed under TEM following 30 min of exposure to TDT 067, which after 24 h had filled the intracellular space. These effects were confirmed in vivo in subungual debris from patients with onychomycosis who received topical treatment with TDT 067. The Transfersome in TDT 067 may potentiate the action of terbinafine by delivering terbinafine more effectively to its site of action inside the fungus. Our in vivo data confirm that TDT 067 can enter fungus in the nail bed of patients with onychomycosis and exert its antifungal effects.