The purpose of the present research was to investigate the mechanism for improved intercellular and intracellular drug delivery from ethosomes using visualization techniques and cell line study. Ethosomal formulations were prepared using lamivudine as model drug and characterized in vitro, ex vivo and in vivo. Transmission electron microscopy, scanning electron microscopy, and fluorescence microscopy were employed to determine the effect of ethosome on ultrastructure of skin. Cytotoxicity and cellular uptake of ethosome were determined using T-lymphoid cell line (MT-2). The optimized ethosomal formulation showed 25 times higher transdermal flux (68.4 +/- 3.5 microg/cm(2)/h) across the rat skin as compared with that of lamivudine solution (2.8 +/- 0.2 microg/cm(2)/h). Microscopic studies revealed that ethosomes influenced the ultrastructure of stratum corneum. Distinct regions with lamellar stacks derived from vesicles were observed in intercellular region of deeper skin layers. Results of cellular uptake study showed significantly higher intracellular uptake of ethosomes (85.7% +/- 4.5%) as compared with drug solution (24.9% +/- 1.9%). The results of the characterization studies indicate that lipid perturbation along with elasticity of ethosomes vesicles seems to be the main contributor for improved skin permeation.