Background Silymarin, a hepatoprotective agent, has poor oral bioavailability. However, the current dosage form of the drug does not target the liver and inflammatory cells selectively. The aim of the present study was to develop lecithin-based carrier system of silymarin by incorporating phytosomal-liposomal approach to increase its oral bioavailability and to make it target-specific to the liver for enhanced hepatoprotection. Methods The formulation was prepared by film hydration method. Release of drug was assessed at pH 1.2 and 7.4. Formulation was assessed for in vitro hepatoprotection on Chang liver cells, lipopolysaccharide-induced reactive oxygen species (ROS) production by RAW 267.4 (murine macrophages), in vivo efficacy against paracetamol-induced hepatotoxicity and pharmacokinetic study by oral route in Wistar rat. Results The formulation showed maximum entrapment (55%) for a lecithin-cholesterol ratio of 6:1. Comparative release profile of formulation was better than silymarin at pH 1.2 and pH 7.4. In vitro studies showed a better hepatoprotection efficacy for formulation (one and half times) and better prevention of ROS production (ten times) compared to silymarin. In in vivo model, paracetamol showed significant hepatotoxicity in Wistar rats assessed through LFT, antioxidant markers and inflammatory markers. The formulation was found more efficacious than silymarin suspension in protecting the liver against paracetamol toxicity and the associated inflammatory conditions. The liposomal formulation yielded a three and half fold higher bioavailability of silymarin as compared with silymarin suspension. Conclusions Incorporating the phytosomal form of silymarin in liposomal carrier system increased the oral bioavailability and showed better hepatoprotection and better anti-inflammatory effects compared with silymarin suspension.