Poor water solubility leads to low dissolution rate and consequently, it can limit bioavailability. Solid dispersions, where the drug is dispersed into an inert, hydrophilic polymer matrix can enhance drug dissolution. Solid dispersions were prepared using phenacetin and phenylbutazone as model drugs with polyethylene glycol (PEG) 8000 (carrier), by melt fusion method. Phenacetin and phenylbutazone displayed an increase in the dissolution rate when formulated as solid dispersions as compared with their physical mixture and drug alone counterparts. Characterisation of the solid dispersions was performed using differential scanning calorimetry (DSC), Fourier transform infrared spectroscopy (FTIR) and scanning electron microscopy (SEM). DSC studies revealed that drugs were present in the amorphous form within the solid dispersions. FTIR spectra for the solid dispersions of drugs suggested that there was a lack of interaction between PEG 8000 and the drug. However, the physical mixture of phenacetin with PEG 8000 indicated the formation of hydrogen bond between phenacetin and the carrier. Permeability of phenacetin and phenylbutazone was higher for solid dispersions as compared with that of drug alone across Caco-2 cell monolayers. Permeability studies have shown that both phenacetin and phenylbutazone, and their solid dispersions can be categorised as well-absorbed compounds.