Liposome display is a novel method for in vitro selection and directed evolution of membrane proteins. In this approach, membrane proteins of interest are displayed on liposome membranes through translation from a single DNA molecule by using an encapsulated cell-free translation system. The liposomes are probed with a fluorescence indicator that senses membrane protein activity and selected using a fluorescence-activated cell sorting (FACS) instrument. Consequently, DNA encoding a protein with a desired function can be obtained. By implementing this protocol, researchers can process a DNA library of 10(7) different mutants. A single round of the selection procedure requires 24 h for completion, and multiple iterations of this technique, which take 1-5 weeks, enable the isolation of a desired gene. As this protocol is conducted entirely in vitro, it enables the engineering of various proteins, including pore-forming proteins, transporters and receptors. As a useful example of the approach, here we detail a procedure for the in vitro evolution of α-hemolysin from Staphylococcus aureus for its pore-forming activity.