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We present a multilevel fast multipole method (MLFMM) solution for volume integral equations dealing with scattering from arbitrarily shaped inhomogeneous dielectrics. The solution accuracy, convergence, computer time and memory savings of the method are demonstrated. Previous works have employed the MLFMM for impenetrable targets. In this paper, we integrate the MLFMM with the volume integral equation method for scattering by inhomogeneous targets. Of particular importance is the use of curvilinear elements for better volume representation and the use of simple basis functions for ease of parallelization.