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Purpose The aim of this study was to evaluate the formulation characteristics and pharmacodynamic activity of the lecithinized coal tar formulation (LCT) employing different methodologies and compare it with that of a conventional coal tar formulation (CCT) employing different methodologies. Methods Characterization for skin-staining was carried out employing shaved back skin of rats. Rheological properties were determined using Texture Analyzer™. The dispersibility of the coal tar formulations in water was determined by macroscopic examination. Antipsoriatic pharmacodynamic activity of the formulations was evaluated employing mouse-tail model. Results The study revealed distinct superiority of the LCT vis-à-vis CCT. The LCT was found be nonstaining with no apparent adverse effect on rat skin. Rheological studies revealed significantly better spreadability and lower stickiness of the LCT than that of CCT. The LCT forms uniform dispersion with water, while the CCT tends to form large aggregates. Finally, the pharmacodynamic model demonstrated superior anti-psoriatic activity of the LCT. Conclusions The findings with the LCT were highly encouraging, as it proved to be nonstaining to skin, easily applicable, and water dispersible with markedly improved efficacy. The product was thus potentially more patient-compliant and efficacious. The evaluation methodologies adopted during the studies were found to be accurate, simple, specific, and reproducible with immense potential for assuring the quality of coal tar product(s). [ABSTRACT FROM AUTHOR]