Salicylic acid (SA), a keratolytic drug, is used to treat skin disorder like corns, warts, and acne. To understand the mechanism by which SA interacts with the cell membranes, we have investigated its interaction with dipalmitoyl phosphatidylethanolamine (DPPE) vesicles using DSC, 1 H NMR and Raman spectroscopy. Presence of drug asymmetrically broadened the acyl chain melting transition and shifted the transition temperature, T m , to lower value. Both, NMR and DSC studies indicate that the drug molecules are located in the glycerol backbone region of the lipid bilayer and increase the membrane headgroup fluidity. At high drug concentration, additional transitions are observed whose intensity increases with increasing drug concentration. In cholesterol doped DPPE dispersion the interaction of SA with DPPE bilayer is more. The transformation of the gel phase of DPPE dispersion to a stable crystalline subgel phase(s) is accelerated by the presence of SA.