Dioleoyl-N-(monomethoxy polyethyleneglycol succinyl)-phosphatidylethanolamine (PEG-PE) (mol. wt. of PEG = 5000), an amphipathic polymer, can be incorporated into the liposome membrane and significantly prolong the blood circulation time of the liposome. As little as 3.7 mol% of PEG-PE in liposome resulted in maximal enhancement of liposome circulation time. However, this activity of PEG-PE was only seen with relatively small liposomes (d less than or equal to 200 nm); larger liposomes containing PEG-PE showed an unusually high level (approx. 35% injected dose) of accumulation in the spleen. We have tested whether the small, PEG-PE containing liposomes are suitable for immuno targeting by incorporating a lung-specific monoclonal antibody on the liposome surface. While another amphiphile, ganglioside GM1, which is well known for its activity to prolong the liposome circulation time, significantly enhanced the lung binding of the immunoliposomes, PEG-PE incorporation of immunoliposomes resulted in a low level of target binding. To test if the reduced target binding is due to a steric barrier effect of the surface PEG polymer, we have incorporated a small amount of N-biotinaminocaproylphosphatidylethanolamine into the PEG-PE containing liposomes and examined the liposome agglutination induced by the addition of streptavidin. As little as 0.72 mol% PEG-PE in these liposomes completely abolished agglutination. In contrast, incorporation of GM1 in liposomes only reduced the rate, but not the extent, of liposome agglutination. These results strongly support the hypothesis that PEG-PE prolongs liposome circulation time by providing a strong steric barrier which prevents close contact with another liposome or cell. Since GM1 provides only a weak steric barrier effect, its activity to prolong the liposome circulation time must involve another yet unknown mechanism.