Epalrestat (EPL) is a water-insoluble drug (14 μM) that inhibits aldose reductase. This study investigated the interactions between β-cyclodextrin (CD) derivatives and EPL to determine the solubilizing effect on EPL from phase solubility diagrams. We improved the solubility of EPL in water by adding β-CD derivatives. Moreover, the solubility of EPL mixed with β-CD derivatives by cogrinding in a ball mill method was about 2–3 times higher than those of EPL with the same CD concentration (5 mM) calculated from phase solubility diagrams. In addition, we investigated the effect of β-CD derivatives on in vitro percutaneous absorption of EPL through hairless mouse skin. Among the coground mixtures of EPL and β-CD derivatives, the mixture containing methyl (ME)-β-CD showed the strongest enhancement of EPL skin permeation. Furthermore, adding 10 wt% urea as a skin permeation enhancer after cogrinding with ME-β-CD improved the flux of EPL 300 times compared to the flux of EPL alone. This result indicates the ME-β-CD ground mixture system with urea has potential as a new transdermal drug delivery system of EPL for diabetic neuropathy.