The aim of this study was to formulate and optimize a emulgel formula for the drug terbinafine. Model drug Terbinafine is a synthetic allylamine antifungal. It is highly lipophilic in nature and tends to accumulate in skin, nails, and fatty tissues. Drug molecule terbinafine has tendency to make a depot structure at the site of administration and provide a double-layered release barrier; this nature is unwanted in case of lipophilic drug molecule. Drug incorporated gel formula were designed with formulation additives Carbapol 934 and Hydroxypropyl methylcellulose K15M were used. Gel forming polymers were soaked for minimum 24 hour for complete expansion. Working variables for emulgel formation were 350C, blending speed 25000rpm and pH 5. Gel formulation code GG was selected after examination of viscosity, pH value, extrudability, spreadability and good enough polymer swelling behaviour. Emulsion formula E-6ATc2 and emulgel formula GG E-6ATc2 were the best formula, which present 0.950 and 0.991 regression coefficient of their drug release pattern. Scanning Electronic Microscopic study of freshly sacrificed and saved rat skin present no sign of keratolysis. Treated rat skin was swelled which indicted that drug molecule were penetrated only after opening of channels through swelling of keratin layer.