Isomalt is a sugar substitute with a wide range of potential pharmaceutical applications as a result of its physicochemical properties. Four grades of this material were evaluated for their physical characteristics. Only Palatinit(R) C and F exhibited potential characteristics for direct compression. As expected, the products required lubrification for tabletting. A level of 1% lubricant gave the best performance for Palatinit(R) C, the most compressible grade as shown by compaction profiles generated using a single-punch machine. However, its flow behaviour had to be improved by including 0.5% Aerosil(R) 200 as shown by tablet weight uniformity data. Further evaluation by Heckel analysis showed that isomalt exhibited plastic behaviour and underwent elastic recovery primary in the die. Its dilution potential was examined using powdered paracetamol. Acceptable tablets were produced up to 30% drug dilution, but the tensile strength values were reduced, disintegration time and friability increased as expected. Drug dissolution profiles showed a decreasing dissolution rate with the increase of compression force and drug concentration, but considerable improvement was noted when a disintegrant was included. The physical characteristics of the tablets were relatively stable after half a year storage at different humidities as a result of the low hygroscopicity of isomalt.