Liposomes containing diclofenac, an anti-inflammatory agent were incorporated into an ointment base for topical application. The drug loaded liposomes were characterized for various physico-chemical attributes and drug efflux profile in in vitro. The systemic availability of drug from liposomes following topical application was evaluated in rats. The effect of sonophoresis on the drug release profile in vitro and systemic availability in vivo was established. The application of liposomal diclofenac resulted in localization of the drug at the site of application with slow systemic availability; however, with the application of ultrasound pulsed drug systemic levels could be achieved.