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In many biology publications, I saw that dimethyl sulfoxide (DMSO) is used to dissolve drugs. However, the cell-based assays are still performed in water-based medium such as RPMI or PBS.

My question is: If a compound is not soluble in water, what is the purpose of using DMSO? Although the drug can be dissolved in pure DMSO, won't it precipitate after putting the DMSO-dissolved compound into culture medium?

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Usually such compounds are dissolved in DMSO to make a concentrated stock solution (e.g. 1000x), which is then diluted into the culture medium. Often, the compound is soluble in water at this lower dilution, but not at the higher concentration required to make a stock. Sometimes the compound has low solubility in water and much of it precipitates. This still lets us test the effect of the fraction that remains soluble.

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