The phase diagram of the sodium naphthenates (SN)/water system was determined between -5 and 95 degrees C. Oil, isotropic water solution, and birefringent gel phases were observed. The appearance of the oil phase was caused by the hydrolysis of SN. After the system was allowed to stand for 3 weeks, a lamellar liquid crystal (LLC) phase separated from the rest of the system at 25 degrees C. This phase was always observed together with other phases. This phase behavior is attributed to different partition coefficient values of the individual constituents of sodium naphthenates between the phases. The partition coefficient difference also caused the appearance of a clear LLC and a turbid gel phase. Under the influence of agitation, the LLC phase with isotropic water solution transformed to giant vesicles; however the equilibrium state of the LLC is of parallel stacked layer structure. Macroscopic dislocations of the liquid crystal were observed, and they were anchored to the interface of the isotropic solution and the liquid crystal phases. These dislocations are similar to screw-type dislocations. The solubilization curve of toluene by SN is analogous to that of hydrophobic materials by a hydrotrope. Copyright 2001 Academic Press.