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The relationships between the physicochemical properties and functionality in dry powder inhaler (DPI) performance was investigated for inhalation grade anhydrous lactose and compared to monohydrate grades. The excipients were characterised using a range of techniques including particle size analysis, moisture sorption and powder rheometry. The inhalation anhydrous lactose grades were readily characterisable. The aerosolisation performance of capsule based DPI formulations containing budesonide (200 μg) and different grades of lactose evaluated using inertial impaction measurements produced fine particle doses of budesonide ranging from 24 to 49 μg. There were no apparent relationships between aerosolisation performance and excipient characteristics, such as particle size and powder density. However, formulations containing lactose grades which exhibit higher powder fluidisation energy values resulted in higher fine particle doses of budesonide.