An injectable formulation of a sedative hypnotic drug, such as the anesthetic drug propofol, that is pharmaceutically stable and demonstrates a reduced incidence of pain upon injection. The formulation of the present invention employs a sulfoalkyl ether cyclodextrin solubilizing and complexing excipient, such as CAPTISOL(R) cyclodextrin (sulfobutyl ether beta-cyclodextrin) to form a true aqueous solution and not a suspension. This formulation minimizes the allergic response and microbial contamination issues typically associated with propofol parenteral formulations. The present formulation may also reduce pain on injection as compared to the known emulsion type propofol formulations. The liquid formulation can be sterile filtered unlike emulsion-type formulations of sedative hypnotics. The liquid formulation can be lyophilized or otherwise dried to yield a solid formulation.