In vitro transcorneal permeation of diclofenac from oil drops was studied using freshly excised goat cornea.The maximum apparent corneal permeability coefficient (Papp) was obtained with 0.2% (w/v) diclofenac drops in sesame oil followed by safflower oil, while formulation in castor oil provided minimal Papp. The addition of benzyl alcohol, a preservative, in oil drops, increased the Papp value of diclofenac. Partition experiments indicated increased partitioning of diclofenac in the aqueous phase in the presence of benzyl alcohol, and the same could be responsible for the benzyl alcohol-induced increase in Papp. The solubility of diclofenac was higher in castor, arachis, and sunflower oil. But drug permeation from 0.5-1.0% (w/v) diclofenac drops in castor oil or 0.5% (w/v) drops in arachis /sunflower oil was less than that observed with 0.2% (w/v) drops in sesame oil. Thus diclofenac 0.2% (w/v) drops in sesame oil containing 0.5% (v/v) benzyl alcohol provides maximum Papp. The formulation increased corneal hydration indicating corneal damage. Since corneal hydration is less than 83% the damage appears to be reversible. The saturation solubility of diclofenac in sesame oil at 4°C is 0.33% (w/v). Hence diclofenac 0.2% (w/v) solution in sesame oil will not precipitate at 4°C and therefore the chances of crystallization of diclofenac from the formulation due to climatic change leading to physical instability appear to be remote.