Liposomes represent a widely varied and malleable class of drug carriers generally characterized by the presence of one or more amphiphile bilayers enclosing an interior aqueous space. Thus, the pharmacological profile of a particular liposomal drug formulation is a function not only of the properties of the encapsulated drug, but to a significant extent of the pharmacokinetics, biodistribution, and drug release rates of the individual carrier. Various physicochemical properties of the liposomal carriers, the drug encapsulation and retention strategies utilized, and the properties of the drugs chosen for encapsulation, all play an important role in determining the effectiveness of a particular liposomal drug. These properties should be carefully tailored to the specific drug, and to the application for which the therapeutic is being designed. Liposomal carriers are also amenable to additional modifications, including the conjugation of targeting ligands or environment-sensitive triggers for increasing the bioavailability of the drug specifically at the site of disease. This review describes the rationale for selecting optimal strategies of liposomal drug formulations with respect to drug encapsulation, retention, and release, and how these strategies can be applied to maximize therapeutic benefit in vivo.