Tolnaftate microcapsules and microspheres were prepared by gelatin-acacia coacervation and emulsion-solvent evaporation methods respectively. The physical state of the drug in these formulations was determined by using scanning electron microscopy (SEM), X-ray powder diffractometry, and differential scanning calorimetry (DSC). High pressure liquid chromatographic (HPLC) method was used for stability determination and polymer-drug interactions were evaluated using FTIR. The pros and cons of each method, in the assessment of the physical state of drug in these formulations, were investigated. SEM was found to be useful in obtaining a direct visual evidence of the presence of crystalline drug in the microspheres, but not for the microcapsule formulation. The DSC method was used to determine the physical state of the drug qualitatively in both these formulations. In the case of the microcapsules, accurate quantitation of the crystalline drug content by DSC was not possible because of the interference of thermal events. Powder X-ray diffractometric method was able to demonstrate the presence of crystalline drug and polymorphic changes, if any, in both these formulations. HPLC data revealed that the drug was stable in these formulations for at least 6 months. The FTIR studies indicated the absence of any drug interaction with the polymeric matrix materials, during preparation of these dosage forms.