Cyclodextrins (CDs), a group of oligosaccharides formed by glucose units bound together in a ring, show a promising ability to form complexes with drug molecules and improve their physicochemical properties without molecular modifications. The stoichiometry of drug/CD complexes is most frequently 1:1. However, natural CDs have a tendency to self-assemble and form aggregates in aqueous media. CD aggregation can limit their solubility. Through derivative formation, it is possible to enhance their solubility and complexation capacity, but this depends on the type of substituent and degree of substitution. Formation of water-soluble drug/CD complexes can increase drug permeation through biological membranes. To maximize drug permeation the amount of added CD into pharmaceutical preparation has to be optimized. However, solubility of CDs, especially that of natural CDs, is affected by the complex formation. The presence of pharmaceutical excipients, such as water-soluble polymers, preservatives, and surfactants, can influence the solubilizing abilities of CDs, but this depends on the excipients’ physicochemical properties. The competitive CD complexation of drugs and excipients has to be considered during formulation studies.