As yet no transdermal topical formulations have been developed for the treatment of chronic itch. We developed a formulation containing 2 mg butorphanol tartrate in 100 microl purified water encapsulated into multilamellar phospholipid vesicles. Drug permeation experiments were studied with Franz diffusion chambers using human skin in vitro and on rat skin in vivo. Histological analysis of rat skins was performed to evaluate skin irritation of the formulation in vivo. Physical properties showed stable formulation with desirable viscosity. In vitro dermal penetration rate data suggest that there was significant permeation at time-points 2 h and 4 h, and a steady state was achieved afterwards to 24 h. Maximal plasma butorphanol concentration was noted at 2 h and steady state was achieved at 8 h. Visual skin assessment as well as histological analysis of excised rat skin did not demonstrate any evidence of inflammation and irritation. In vitro and in vivo analysis demonstrated release of a consistent amount of butorphanol in a sustained manner for 24 h. This liposomal transdermal delivery formulation could serve as a method to deliver butorphanol for patients with chronic pruritus.