Hepatitis C viral chemotherapy suffers from a relatively short half-life of the interferon alpha-2a (IFN alpha). To address this issue, we investigated the effects of polyethylene glycol modification and their subsequent encapsulation in multivesicular liposomes (MVLs), on the release properties of IFN alpha. In the present study, interferon-alpha was conjugated with methoxy-polyethylene glycol (mPEG, MW 5000). Prepared IFN alpha-mPEG5000 conjugate (IFN alpha-mPEG5000) was purified with size exclusion chromatography. The relative in vitro anti-viral activity of pegylated interferon alpha-2a was found to 87.9% of the unmodified IFN alpha. Pegylated IFN alpha encapsulated multivesicular liposomes were prepared by double emulsification technique followed by evaporation of organic solvents from chloroform ether spherules suspended in water. Prepared MVLs were then characterized for shape, size, vesicle count, encapsulation efficiency, and in vitro release rate. In process stability studies of pegylated IFN alpha protein exhibited better stability when exposed to chloroform: diethyl ether (1:1 ratio) mixture as well as variable vortexing time as compared to native IFN alpha. Relatively high percentage of encapsulation of protein ( approximately 75%) was achieved. In vitro release profile of pegylated IFN alpha-mPEG5000 containing MVLs in the PBS showed lower initial burst release with sustained and incomplete release over a period of 1 week. In contrast, native IFN alpha entrapped MVLs were observed as higher initial burst release, i.e., nearly 35% followed by almost complete release. The results confirmed the possibility of multivesicular liposomes as a long-acting or sustained-release delivery system using a combination of pegylation and encapsulation technique for controlled delivery of interferon alpha.