The effect of incorporation of gentamicin in liposomes on intracellular killing of Staphylococcus aureus was studied in vitro in cultured bovine mammary macrophages, and in experimental bovine mastitis. Liposomes were prepared by reverse-phase evaporation and ranged in size from 0.1 to 1.0 micron in diameter (mean 0.51 micron), with an encapsulation efficiency of gentamicin of 27.4%. Liposomes were taken up by in vitro cultured macrophages but intracellular killing of S. aureus over 12 h was not significantly enhanced when treatment with liposomally-entrapped gentamicin was compared to free gentamicin. Treatment of experimentally-induced S. aureus mastitis in five lactating Holstein cows (20 quarters) failed to show significant differences in bacterial counts when treatment with liposomally-entrapped gentamicin was compared to treatment with free gentamicin or blank liposomes plus free gentamicin. Gentamicin concentrations exceeded the in vitro determined minimum inhibitory concentration for 48 h when quarters were treated with 50 mg gentamicin on two occasions 24 h apart.