The purpose of this study was to explore the utility of hydroxypropyl-β-cyclodextrin (HP-β-CD) systems in forming inclusion complexes with the anti-rheumatic or anti-arthritic drug, etodolac (EDC), in order to overcome the limitation of its poor aqueous solubility. This inclusion system achieved high solubility for the hydrophobic molecule. The physical and chemical properties of each inclusion compound were investigated. Complexes of EDC with HP-β-CD were obtained using the kneading and co-evaporation techniques. Solid state characterization of the products was carried out using Fourier transform infrared spectroscopy (FT-IR), differential scanning calorimetry (DSC), powder X-ray diffraction (XRD) and Scanning electron microscopy (SEM). Studies in the solution state were performed using UV-Vis spectrophotometry and 1H-NMR spectroscopy. Phase solubility profiles with HP-β-CD employed was found to be AL type. Stability constants (Kc) from the phase solubility diagrams were calculated indicating the formation of 1:1 inclusion complex. Stability studies in the solid state and in liquid state were performed; the possible degradation by RP-HPLC was monitored. The dissolution studies revealed that EDC dissolution rate was improved by the formation of inclusion complexes.