Objective: To assess the pharmacokinetics. clinical efficacy and tolerability of a single intra-articular injection of dexamethasone palmitate (Lipotalon((R)); Merckle GmbH) 4 or 12mg over a period of 4 weeks. Design: Randomised. parallel-group, phase II study. Patients and Participants: 24 male and female patients aged 63.3 +/- 5.5 years (range 56 to 75 years) with activated inflammatory osteoarthritis of the knee. Methods: Serum concentrations of free dexamethasone, arising from esterase breakdown of dexamethasone palmitate, were measured by radioimmunassay. The linearity of both doses was calculated by Wilcoxon's method. The profile of absorption was evaluated by the Wagner Nelson method. Clinical efficacy was assessed by an index of activity, and pain, efficacy and tolerability were evaluated by descriptive methods. Results: The mean peak serum concentrations of dexamethasone were attained after 14 hours (4mg) and 21 hours(12mg), and were 6.36 and 10.97 mug/L, respectively. 90% of the dose was absorbed within 24 and 48 hours, respectively. 10% was not absorbed until day 28. Endogenous cortisol levels fell transiently to approximately 10% of baseline levels after 24 to 36 hours, but returned to normal within 3 to 5 days. Pain reduction and clinical improvement were maintained over the complete observation period of 4 weeks. No adverse events were observed. Conclusion: Dexamethasone palmitate exhibits short- to medium-term sustained-release properties, together with good efficacy and very good tolerability.