Capsicum fruit is used for treating skeletomuscular disorders as a counterirritant analgesic around the globe. But its concentration-dependent irritation and concomitant withdrawal of therapy by the patients hampers its therapeutic usefulness. In the present study, a novel nanolipid approach based on elastic phospholipid vesicles was employed to encapsulate a semipurified extract of Bhut Jolokia for topical drug delivery application. The working hypothesis was that encapsulation of irritant extract into nanolipid vesicles may prevent the initial rejection of formulation and the elastic vesicles may facilitate deeper skin penetration over a shorter time period. Surface response methodology was adopted to study the effect of selected independent formulation variables on dependent variables like vesicle size and entrapment efficacy. The prepared formulations were characterized for various physicochemical parameters. The efficacy of the newly developed nonolipid vesicle formulation loaded with semipurified extract of Bhut Jolokia was tested on carrageenan and formaldehyde-induced inflammation as well as Freund's adjuvant-induced arthritis model. The novel formulations were tested on human volunteers in a Phase I clinical trial and were found to be acceptable. The study indicates that this strategy holds immense potential for topical delivery of the bioactive from Bhut Jolokia and can pave the way for its clinical applications.