Lawsone is the principle colouring compound of Henna, Lawsonia inermis Linn. (Fam. Lythraceae). Lawsone shows low bioavailability because it is insoluble in water and less soluble in other solvents. The objectives of the study were to increase the solubility and dissolution rate of lawsone using by forming β-cyclodextrin (β-CD) inclusion complex and formulating this into a gel formulation for topical use. Method: The inclusion complex were prepared by taking lawsone to β-CD weight ratios of 1:1, 1:2, 1:4 and 1:8. By this technique solubility and dissolution rate of lawsone wassignificantly increased. The inclusion complex was characterized by FTIR and DSC. Results: Antifungal activity of lawsone gel was evaluated on Candida albicans fungi. The in-vitro drug release study was performed on goat skin. Antifungal activity of lawsone and β-CD complex (1:2) showed the biggest zone of inhibition as compared to other inclusion complexes. Conclusion: The antifungal activity of gel of inclusion complex of lawsone and β-CD showed significant antifungal activity.