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Background: Levocetirizine, an active enantiomer of cetirizine is third generation antihistaminic agent used for treating various allergies like atopic dermatitis, chronic idiopathic urticaria and allergic rhinitis. Objective: Development of novel topical formulation of levocetirizine based on flexible vesicles (FVs) with an aim to have targeted peripheral antihistaminic effect. Materials and methods: The FVs were prepared by thin film hydration method and characterized for drug content, entrapment efficiency, pH, vesicular size, spreadability, morphological characteristics and drug leakage studies. Franz diffusion cell assembly was used to carry out the ex vivo permeation studies through mice skin and the permeation profile of the developed FV formulation was compared with conventional formulations of levocetirizine. Results and discussion: The ex vivo permeation studies revealed 1.78-fold increase in percent permeation of levocetirizine from FV formulation as compared to conventional formulations of levocetirizine in 8 h. Further, oxazolone induced atopic dermatitis murine model was selected to study the in vivo pharmacodynamic activity. The developed formulation was evaluated for scratching score, erythema score and histological evaluation. There was marked reduction in scratching score from 15.25 scratches/20 min with conventional levocetirizine cream to 6.75 scratches/20 min with application of levocetirizine FV formulation. Also, there was significant reduction in erythema score as well as dermal eosinophil count. Results of skin sensitivity and toxicity studies suggest that the developed formulation was dermally safe and nontoxic. Conclusion: A novel FVs based topical formulation of levocetirizine was successfully developed for treatment of atopic dermatitis. [ABSTRACT FROM AUTHOR]