The aim of this study is to investigate in vivo anti-rheumatic activity of methotrexate-entrapped ultradeformable liposomal gel (MTX-UDLs-gel) in adjuvant-induced arthritis rat model. Methotrexate-entrapped ultradeformable liposomes (MTX-UDLs) with the optimal phosphatidylcholine to Tween 80 ratio (7:3, w/w) were incorporated into 1% Carbopol gel. MTX-UDLs-gel was characterized in terms of appearance, clarity, homogeneity, pH and drug content. The permeation of MTX-UDLs-gel across rat skin was investigated using Franz diffusion cell. In vivo anti-rheumatic activity of MTX-UDLs-gel was assessed in terms of edema volume, paw edema and leukocyte infiltration scores, histopathological analysis and inflammatory cytokines level in complete Freund's adjuvant (CFA)-induced arthritis rat model. MTX-UDLs-gel showed good homogeneity and clarity, neutral pH and about 99.5% drug content. The cumulative amount of MTX permeated for 24 h from MTX-UDLs-gel (164.6 μg) was 1.5 and 2.15 times higher than that of MTX-CLs-gel (113.3 μg) and MTX-plain-gel (76.6 μg), respectively. MTX-UDLs-gel significantly alleviated the severity of inflammation by reducing edema volume, histological scores and accumulation of neutrophils and improving tissue architecture in CFA-induced arthritis rat model. MTX-UDLs-gel effectively suppressed the expression of pro-inflammatory cytokines, TNF-α and IL-1β, in paw tissues. In conclusion, the developed MTX-UDLs-gel has a great potential for effective delivery of MTX into the inflamed joints in rheumatoid arthritis.