Cysteine protease (papain) is a plant derived enzyme and due to its collagenolytic activity has potential in fibrosis reduction. However, a major hurdle in its use as fibrosis reducing agent is to overcome stratum corneum skin barrier via topical application, owing to its hydrophilic and high molecular weight and protein nature which is prone to degradation. The aim of the present study was to develop a penetration enhancer incorporated drug delivery system, i.e. propylene glycol (PG) liposomes, loaded with papain for application in fibrosis therapy. Papain loaded PG-liposomes were prepared by the solvent injection method and characterized by size, shape, zeta potential, entrapment efficiency, drug release and stability. Papain conformational changes due to process stress were evaluated by electrophoresis and fluorescence spectroscopy. Biological evaluation was carried out in rodents by skin irritation and percent fibrosis reduction assays following induction of fibrosis arisen due to controlled second degree burn. Papain loaded PG-liposomes had mean vesicle size 180±30.3, zeta potential −25±1, polydispersity index 0.181 and 85±4.3% entrapment efficiency. Cumulative drug release after 8h was found to be 74.26±3.0%. SDS-PAGE and fluorescence spectroscopic studies confirmed the stability of papain after incorporation in PG-liposomes. Fibrosis reduction studies in animal models revealed that PG-liposomes incorporated papain improved fibrosis reduction significantly in comparison to conventional liposomes and free papain solution (p <0.05). Data suggest that propylene glycol incorporated liposomal system enhances papain proteolytic and collagenolytic activity along with a reduction in skin irritancy via preventing direct contact of papain with skin, improves papain therapeutic fibrosis reduction potential, an approach that may provide an efficient alternative for protease mediated fibrosis reduction in a variety of demanding circumstances.