Transdermal drug delivery systems (TDDSs) have gained substantial attention during the last decade. TDDS are versatile delivery systems in which active components are delivered to skin for local effects or systemic delivery of active pharmaceutical through the skin. Overcoming stratum corneum is the most challenging step of delivering drugs through the skin. Lipid-based vesicular delivery systems due to the capability of the delivery of both hydrophilic and hydrophobic drugs are becoming more popular during the recent years. Ethosomes are innovative, biocompatible, biodegradable and non-toxic form of lipid-based vesicles that efficiently enable to entrap drugs of various physicochemical properties. These are other forms of liposome which contain high amounts of ethanol in their structure that enabling ethosomes to efficiently penetrate through deeper layers of skin. Ethosomes have various compositions based on their type but are mainly composed of phospholipids, ethanol, water and the active components. Ethosomes are easily manufactured and they are superior compared to liposomes in terms of different aspects due to the presence of ethanol. The purpose of this review is to thoroughly focus on various aspects of ethosomes, including mechanism of penetration, advantages and disadvantages, characterisation and applications.