Transdermal drug delivery (TDD) is the administration of therapeutic agents through intact skin for systemic effect. TDD offers several advantages over the conventional dosage forms such as tablets, capsules and injections. Currently there are about eight drugs marketed as transdermal patches. Examples of such products include nitroglycerin (angina pectoris), clonidine (hypertension), scopolamine (motion sickness), nicotine (smoking cessation), fentanil (pain) and estradiol (estrogen deficiency). Since skin is an excellent barrier for drug transport, only potent drugs with appropriate physicochemical properties (low molecular weight, adequate solubility in aqueous and non-aqueous solvents, etc) are suitable candidates for transdermal delivery. Penetration enhancement technology is a challenging development that would increase significantly the number of drugs available for transdermal administration. The permeation of drugs through skin can be enhanced by physical methods such as iontophoresis (application of low level electric current) and phonophoresis (use of ultra sound energy) and by chemical penetration enhancers (CPE). In this review, we have discussed about the CPE which have been investigated for TDD. CPE are compounds that enhance the permeation of drugs across the skin. The CPE increase skin permeability by reversibly altering the physicochemical nature of the stratum corneum, the outer most layer of skin, to reduce its diffusional resistance. These compounds increase skin permeability also by increasing the partition coefficient of the drug into the skin and by increasing the thermodynamic activity of the drug in the vehicle. This review compiles the various CPE used for the enhancement of TDD, the mechanism of action of different chemical enhancers and the structure-activity relationship of selected and extensively studied enhancers such as fatty acids, fatty alcohols and terpenes. Based on the chemical structure of penetration enhancers (such as chain length, polarity, level of unsaturation and presence of some special groups such as ketones), the interaction between the stratum corneum and penetration enhancers may vary which will result in significant differences in penetration enhancement. Our review also discusses the various factors to be considered in the selection of an appropriate penetration enhancer for the development of transdermal delivery systems.