Permethrin is popularly used in a variety of therapeutic areas. However, the poor water solubility of permethrin seriously limits its wider clinical applications. The present study demonstrates that solubility of permethrin in aqueous solution can considerably increase in the presence of beta-cyclodextrin (beta-CD). Extensive experimental data along with computational modeling reveal the formation of stable permethrin/beta-CD inclusion complexes, including permethrin(beta-CD) and permethrin(beta-CD)2, through hydrophobic binding. Both permethrin(beta-CD) and permethrin(beta-CD)2 complexes coexisted in aqueous solution, and the ratio of the concentration of permethrin(beta-CD) complex to that of permethrin(beta-CD)2 complex was dependent on the concentration of beta-CD. The complexation of permethrin with beta-CD significantly improved the bioavailability of permethrin and, therefore, increased the bioactivity. The significant increase of the bioactivity of permethrin in the presence of beta-CD provides an effective approach to improve the practical use of permethrin in public health and agriculture.