In contrast to many traditional pharmaceutical agents that exhibit a high degree of aqueous solubility, new drug candidates are frequently highly lipophilic compounds. The aqueous environment of the blood provides a thermodynamically unfavourable environment for the disposition of such hydrophobic drugs. However, this limitation can be overcome by association with circulating lipoproteins. Elucidation of the mechanisms that dictate drug-lipoprotein association and blood-to-tissue partitioning of lipoprotein encapsulated drugs might yield valuable insight into the factors governing the pharmacological activity and potential toxicity of these compounds. This Review discusses the impact of hydrophobic drug-lipoprotein interactions on pharmacokinetics, drug metabolism, tissue distribution and biological activity of various hydrophobic compounds, and outlines how best to use this information in drug discovery and development programmes.