Melatonin (MT) is a good candidate for transdermal delivery considering its short biological half-life, low molecular weight and a variable oral absorption. The objective of this work was to develop a novel formulation of melatonin for its efficient transdermal delivery. Melatonin loaded elastic liposomal formulation was prepared, characterized and the effect of this developed formulation on the in vitro permeation of melatonin across human cadaver skin was investigated, using a locally fabricated Franz diffusion cell. Skin permeation potential of the developed formulation was assessed using confocal laser scanning microscopy (CLSM), which revealed an enhanced permeation of the formulation to the deeper layers of the skin (up to 180 microm) following channel like pathways. Skin permeation profile of melatonin through elastic liposomal formulations was observed and the investigations revealed an enhanced transdermal flux (51.2+/-2.21 microg/cm(2)/h), decreased lag time (1.1h) and an optimum permeability coefficient (15.06+/-0.52 cm/h) for melatonin. The obtained flux was nearly 5 and 12.3 times higher than conventional liposomal and plain drug solution, respectively (P<0.005). Our result suggests the feasibility of elastic liposomal system for transdermal delivery of melatonin thereby eliminating the limitations of long lag time and poor skin permeation associated with the drug.