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Cyclodextrins (CDs) are enabling pharmaceutical excipients that can enhance both solubility and stability of wide variety of drugs in aqueous solutions through formation of drug/CD inclusion complexes where apolar moieties of the drug molecules are located inside the CD cavity. In properly designed pharmaceutical formulations CDs will improve physiochemical properties of lipophilic drugs without affecting their intrinsic ability to permeate biological membranes. Here the effect of CD complexes on the chemical stability of drugs is reviewed. Numerous studies shown that in aqueous solutions CD complexation can hamper hydrolysis, oxidation, photodegradation, isomerization and enzyme catalyzed degradation of dissolved drugs. However, some drugs, such as β-lactam antibiotics, can under certain conditions undergo CD catalyzed degradation in aqueous solutions. Also, some drugs that are stabilized by CDs in aqueous solutions are destabilized by the same CDs in solid dosage forms. Thus, the effects of CDs on drug stability have to be tested and verified in the final drug formulation and under the recommended storage conditions.