The objective of this study was to investigate hydrogenated vegetable oil (Lubritab) and hydrogenated castor oil (HCO) as potential lipophilic binders in melt granulation process for the preparation of sustained release matrices of venlafaxine hydrochloride, a highly water soluble drug. The effect of concentration, type of polymer and method of preparation (direct compression of physical mixtures and melt granulation technique) were studied. Granules prepared by melt granulation method were evaluated for micromeritic properties, FT-IR, DSC, XRD and SEM. The compressed tablets were subjected to thickness, hardness, friability, mass variation test, drug content and in vitro release studies. The result of dissolution study showed that formulations containing drug: HCO (1:3 m/m) retarded drug release more than those containing drug: Lubritab (1:3 m/m) ratio. In conclusion, melt granulation technique was found to be more appropriate in retarding the release compared to compression of physical mixtures of drug and lipophilic binder. The study showed that HCO and Lubritab are the appropriate meltable binders that can be utilized as matrix-forming agent to sustained the release of highly water soluble drugs.