Topical treatment of various skin disorders requires drug absorption and penetration through the stratum corneum (SC) into the epidermis and dermis tissues. The use of nano-drug delivery systems including liposomes and lipid nanoparticles (SLNs) have been shown to facilitate SC penetration. The goal of this work was to study the impact of liposome sizes and the resulted drug distribution inside various skin tissue. All trans retinoic acid (ATRA) was used as the model drug and loaded into gel phase HSPC/CHOL/DSPE-PEG liposomes (lipo-ATRA) with sizes ranging from 80nm to more than 300nm. The percutaneous drug absorption process was monitored and analyzed. There were significant differences in percutaneous absorption and tissue distribution resulted from liposomes smaller than 100nm and those bigger than 200nm. Lipo-ATRA with a mean diameter of 83nm can deliver the content to epidermis and dermis. But for 200nm - 300nm liposomes, the resulted epidermis and dermis ATRA levels were less than about one third, suggesting bigger liposomes had poor penetration through the brick and mortar structure of SC. Gel phase liposomes with sizes under 100nm improved encapsulated drug absorption and distribution into the epidermis and dermis tissues. A size dependent mechanism for liposome penetration of the stratum corneum was proposed.