Understanding the interaction between the drug:carrier complex and protein is essential for the development of a new drug-delivery system. However, the majority of reports are based on an understanding of interactions between the drug and protein. Here, we present our findings on the interaction of the anti-inflammatory drug diflunisal with the drug carrier cyclodextrin (CD) and the protein lysozyme, utilizing steady-state and time-resolved fluorescence spectroscopy. Our findings reveal a different pattern of molecular interaction between the inclusion complex of β-CD (β-CD) or hydroxypropyl-β-CD (HP-β-CD) (as the host) and diflunisal (as the guest) in the presence of protein lysozyme. The quantum yield for the 1:2 guest:host complex is twice that of the 1:1 guest:host complex, indicating a more stable hydrophobic microenvironment created in the 1:2 complex. Consequently, the nonradiative decay pathway is significantly reduced. The interaction is characterized by ultrafast solvation dynamics and time-resolved fluorescence resonance energy transfer. The solvation dynamics of the lysozyme becomes 10% faster under the condition of binding with the drug, indicating a negligible change in the polar environment after binding. In addition, the fluorescence lifetime of diflunisal (acceptor) is increased by 50% in the presence of the lysozyme (donor), which indicates that the drug molecule is bound to the binding pocket on the surface of the protein, and the average distance between active tryptophan in the hydrophobic region and diflunisal is calculated to be approximately 50 Å. Excitation and emission matrix spectroscopy reveals that the tryptophan emission increases 3-5 times in the presence of both diflunisal and CD. This indicates that the tryptophan of lysozyme may be present in a more hydrophobic environment in the presence of both diflunisal and CD. Our observations on the interaction of diflunisal with β-CD and lysozyme are well supported by molecular dynamics simulation. Results from this study may have an impact on the development of a better drug-delivery system in the future. It also reveals a fundamental molecular mechanism of interaction of the drug-carrier complex with the protein.