Niosomes are reported to increase the skin permeation and bioavailability of topically applied drug molecules. However, very few studies were reported for nanometer-sized niosome vesicles. The aim of the present study was to prepare minoxidil-loaded niosomal formulation using ethanol injection method. Surfactant screening showed that only Span 60, Span 20, and Tween 20 with cholesterol have capability of nano size vesicle formation. The formed niosomes were characterized for entrapment efficiency, vesicle size, scanning electron microscope, and physical stability. By modulation of surfactant and cholesterol ratio maximum entrapment up to 34.70 ± 1.1 % with size of 470 ± 27 nm was obtained (Span 60/cholesterol ratio of 1:2). The vesicle size obtained was between 150 and 800 nm that was depending on cholesterol ratio and type of nonionic surfactant employed. The in vitro skin permeation study showed that an increase in cholesterol concentration in niosome vesicles increases minoxidil skin retention. Niosome formulation prepared with 1:2 ratio of Span 60 and cholesterol showed 17.21 ± 3.2 % skin retention of minoxidil, which is more than eightfold as compared to control minoxidil gel. © 2012 Controlled Release Society.