An attempt was made to develop an oral microemulsion formulation for enhancing the bioavailability of famotidine is a BCS class III drugs which are known to have high solubility but low permeability. An Olive oil based microemulsion formulation with Tween 80 as surfactant and PEG 400 as cosurfactant was developed for oral delivery of famotidine. A single isotropic region, which was considered to be a bicontinuous microemulsion, was found in the pseudoternary phase diagrams developed at various Tween80: PEG 400: oil ratios. The microemulsion system was also investigated in terms of other characteristics, such as viscosity, pH, conductivity, clarity, particle size, in vitro drug release, in vitro intestinal permeability study compared to the plain drug solution (64.18%). The developed microemulsion system improved the permeability (93.43%) by increasing the lipophillicity due to the oil phase and also by destabilizing the membrane stability due the surfactants and may be used as an enhanced delivery of BCS class III drugs.