Synthesis of a distearoylphosphatidylethanolamine-polyethylene glycol (DSPE-PEG) conjugate, bearing a hydrazide group at the unattached end of the polymer chain, was achieved using a new heterobifunctional polymeric reagent. The heterobifunctional PEG derivative carrying on one end a reactive succinimidyl carbonate (SC) group and at the other terminal a tert-butyloxycarbonyl (Boc) protected hydrazide group was prepared by an efficient four step process from readily available PEG-2000. The SC-end group of the polymer reacted readily with the amino group of DSPE forming a stable urethane attachment between lipid and PEG. Acidolytic removal of the Boc group yielded a hydrazide-PEG-lipid conjugate suitable for preparation of polymer-grafted liposomes. Taking advantage of the well-documented chemical versatility of hydrazide groups, various biologically relevant ligands can be linked to this type of functionalized liposomes.