In the present work, we have attempted to deliver diclofenac sodium to a target site by intra-arterial injection of gelatin magnetic microspheres and subsequent localization using an external magnet. Drug-loaded magnetic microspheres were prepared by emulsification/cross-linking method, characterized by drug loading, magnetite content, size distribution, optical microscopy, scanning electron microscopy (SEM), Fourier transform infrared (FT-IR) analysis, differential scanning calorimetry (DSC), X-ray diffraction (XRD), absence of glutaraldehyde by gas chromatography, and in vitro release studies. The targeting efficiency and the therapeutic efficacy of microspheres were studied in vivo in rabbits. The microspheres showed drug loading of 9.1, 18.7, 24.9% w/w, magnetite content of 27.8-28.9% w/w with an average size range of 25-30.6 mum, depending upon the drug-polymer ratio. They were spherical in nature as evidenced by optical microscopy and SEM. FT-IR, DSC, and XRD studies revealed the absence of drug-polymer interaction. Gas chromatography confirmed the absence of residual glutaraldehyde. The microspheres were able to prolong the drug release over 24-30 days and the application of sonication during in vitro release study has slightly increased the release rate. After intra-arterial administration of microspheres, 77.7% of injected dose was recovered at the target site which revealed good targeting efficiency. The microspheres effectively reduced joint swelling, but lesser extent than the oral diclofenac sodium in high dose, in antigen induced arthritic rabbits without producing gastric ulceration which was observed in rabbits treated with oral diclofenac sodium.