This study was undertaken with an objective to increase the dissolution rate and bioavailability of a poorly water soluble drug gliclazide (Gz) by complexation with beta-cyclodextrin (CD) in the presence of hydroxypropylmethylcellulose (HPMC). Phase solubility studies of Gz were performed in aqueous solutions of different concentrations of CD alone and in the presence of some water soluble polymers. Gz-CD complexes were prepared in 1:1 and 1:2 drug:CD molar ratios by autoclaving, neutralization and kneading methods. The complexes were also prepared in the presence of 0.05% w/w HPMC. Physical mixtures of Gz-CD in 1:1 and 1:2 molar ratios were also prepared. Complexes and physical mixtures were characterized and evaluated for in vitro dissolution in distilled water and hypoglycemic activity in rats. CD enhanced the dissolution of Gz to 1.5 to 2.0 fold. Presence of water soluble polymer HPMC in Gz-CD complexes further enhanced the rate and extent of drug dissolution to 2.5 fold. Gz-CD-HPMC complexes were found to be more promising as they produced not only an early onset but also more intense hypoglycemic effect as compared to pure drug powder and commercial tablets.