Photodynamic therapy (PDT) is a clinically approved, non-invasive alternate cancer therapy. A synthetic glucocorticoid (GC), dexamethasone (Dex) has previously been demonstrated to sensitize cancer cells to chemotherapy. However, to the best of our knowledge, the sensitization effect of GCs on PDT has not yet been investigated. We hypothesized that glucocorticoid receptor (GR) targeting can selectively make cancer cells more sensitive to PDT treatment, as PDT induces hypoxia wherein GR-activity gets enhanced. In addition, Dex was reported to act against the PDT-induced cell survival pathways like HIF-1α, NRF2, NF-κB, STAT3 etc. Thus, both the treatments can complement each other and may result in increasing the effectiveness of combination therapy. Hence, in this study, we developed liposomal formulations of our previously reported PDT agent P-Nap, either alone (D1P-Nap) or in combination with Dex (D1XP-Nap) to elucidate the sensitization effect. Interestingly, our RT-PCR results in hypoxic conditions showed down-regulation of HIF-1α and over expression of GR-activated genes for glucose-6-phosphatase (G6Pase) and PEPCK enzymes, indicating prominent GR-transactivation. We also observed higher phototoxicity in CT26.WT cells treated with D1XP-Nap PDT under hypoxic conditions as compared to normoxic conditions. These effects were reversed when cells were pre-treated with RU486, a competitive inhibitor of GCs. Moreover, our in vivo findings of subcutaneous tumor model of Balb/C mice for colon cancer revealed a significant decrease in tumor volume as well as considerable enhancement in the survivability of PDT treated tumor-bearing mice when Dex was present in the formulation. A high Bax/Bcl-xL ratio, high p53 expression, enhanced E-cadherin expression and down-regulation of pro-tumorigenic transcription factors NF-κB and c-Myc were found in tumor lysates from mice treated with D1XP-Nap under PDT, indicating GR-mediated sensitization of the tumor to PDT-induced cell death and enhancement of life-span for tumor bearing mice.