Introduction Many drugs are unavailable in suitable oral paediatric dosage forms, and pharmacists often have to compound drugs to provide paediatric patients with an acceptable formulation in the right dose. Liquid formulations offer the advantage of dosing flexibility and ease of administration to young patients, but drug substances often show poor aqueous solubility. The objective of this work was to study different solvents and matrices to design a liquid formulation for poorly water soluble drugs, using lorazepam as model drug. Methods Three different formulation strategies were explored to improve the solubility. Firstly, water-soluble organic solvents were used to improve the aqueous solubility directly, secondly, ionic surfactants were used to solubilise the model drug, and thirdly, complexation of lorazepam with cyclodextrin was studied. Specific attention was paid to excipients, adequate taste correction and palatability. For the final formulation, physical and chemical stability and microbiological quality were assessed for 12 months. Results An organic solvent based formulation, containing a mixture of polyethylene glycol and glycerol 85%, with a minimum amount of propylene glycol, proved to be physically and chemically stable. Development of the non-ionic surfactants formulation was discontinued due to taste problems. The cyclodextrin formulations were physically stable, but lorazepam content declined to 90% within five months. The final formulation contained in volume concentration (%v/v) 87% glycerol, 10% polyethylene glycol 400 and 3% propylene glycol. Orange essence was the preferred taste corrector. The formulation remained stable for 12 months at 4 °C, with lorazepam content remaining > 95%. Related substances increased during the study period but remained below 2%. In-use stability was proven up to 4 weeks. Conclusion An organic solvent based oral formulation was shown to be superior to a non-ionic surfactant based formulation or a cyclodextrin formulation. These results may help to formulate paediatric formulations of other poorly water soluble drugs, to aid pharmacy compounding.