The Transfersome® is a lipid vesicle that contains membrane softeners, such as Tween 80, to make it ultra-deformable. This feature makes the Transfersome® an efficient carrier for delivery of therapeutic drugs across the skin barrier. It was reported that TDT 067 (a topical formulation of 15 mg/ml terbinafine in Transfersome® vesicles) has a much more potent antifungal activity in vitro compared with conventional terbinafine, which is a water-insoluble fungicide. Here we use ultra-structural studies and live imaging in a model fungus to describe the underlying mode of action. We show that terbinafine causes local collapse of the fungal endoplasmic reticulum, which was more efficient when terbinafine was delivered in Transfersome® vesicles (TFVs). When applied in liquid culture, fluorescently labeled TFVs rapidly entered the fungal cells (T1/2∼2 min). Entry was F-actin- and ATP-independent, indicating that it is a passive process. Ultra-structural studies showed that passage through the cell wall involves significant deformation of the vesicles, and depends on a high concentration of the surfactant Tween 80 in their membrane. Surprisingly, the TFVs collapsed into lipid droplets after entry into the cell and the terbinafine was released from their interior. With time, the lipid bodies were metabolized in an ATP-dependent fashion, suggesting that cytosolic lipases attack and degrade intruding TFVs. Indeed, the specific monoacylglycerol lipase inhibitor URB602 prevented Transfersome® degradation and neutralized the cytotoxic effect of Transfersome®-delivered terbinafine. These data suggest that (a) Transfersomes deliver the lipophilic fungicide Terbinafine to the fungal cell wall, (b) the membrane softener Tween 80 allows the passage of the Transfersomes into the fungal cell, and (c) fungal lipases digest the invading Transfersome® vesicles thereby releasing their cytotoxic content. As this mode of action of Transfersomes is independent of the drug cargo, these results demonstrate the potential of Transfersomes in the treatment of all fungal diseases.