When a topical formulation is placed on the skin, the active drug is usually required to penetrate through the stratum corneum into the viable tissue. The major control to this process is the slow diffusion through the dead horny layer. The major route of drug penetration through the stratum corneum is via the tortuous intercellular channels. It is therefore important to ascertain the nature of the environment that the drug experiences within the intercellular pathway and how it is affected by the presence of formulation components. The lipids within the intercellular channels are a complex mixture but they are structured into bilayer arrays. Extraction of the lipids by solvents within the formulation will lead to enhanced permeability of the skin. Some penetration enhancers act by creating disorder in the alkyl chains of the lipid bilayers; others modify the solubility characteristics within the stratum corneum. The different interactions that are possible will be discussed in this article.