In an attempt to improve the skin permeation and anti-inflammatory activity of piroxicam, various topical formulations including oleo-hydrogels (oleo-gels) were prepared and their in vitro diffusion, skin permeation and in vivo anti-inflammatory activities were evaluated. In vitro diffusion and permeation through a standard cellophane membrane and hairless abdominal rat skin were studied using a modified diffusion cell. The diffusion and permeation parameters such as apparent release rate, cumulative amount permeated, steady-state flux, lag time, permeability coefficient, diffusion coefficient and partition coefficient were determined for the prepared formulations in comparison with a commercial piroxicam gel (Feldene gel, Pfizer). The topical anti-inflammatory activity of the prepared formulations were compared with the Feledene gel using croton oil-induced inflammation in mice. The results indicate that topical oleo-hydrogels under study improved the diffusion and skin permeation characteristics of piroxicam. In addition, the anti-inflammatory activity of piroxicam in the oleo-gel preparations was relatively higher as compared with the commercial piroxicam gel, Feldene-gel.