The interaction of multilamellar liposomes with mouse peritoneal macrophages cultured in vitro has been examined. The principal mechanism of liposome uptake by these cells is by phagocytic engulfment. Studies with radiolabeled liposomes demonstrated that they are incorporated into macrophages as intact structures and that treatment of macrophages with inhibitors of phagocytosis prevents liposome uptake. Incubation of macrophages with liposomes containing encapsulated fluorescein-labeled bovine serum albumin resulted in localization of fluorescence within discrete cytoplasmic vacuoles. Ultrastructural observations confirmed that liposomes were internalized and were enclosed within phagosomes. Electron microscopy also revealed that, by 24 hr following phagocytosis, adjacent phagosomes containing liposomes prepared from bovine brain phosphatidylserine, egg phosphatidylcholine, and lysolecithin (mol ratio, 4.95/4.95/0.1) fused within the cytoplasm. In contrast, phagosomes containing neutral liposomes consisting solely of egg phosphatidylcholine did not fuse and remained as discrete single structures. Negatively charged bovine brain phosphatidylserine/egg phosphatidylcholine/lysolecithin liposomes were phagocytosed at a much faster rate (12 times faster) than were neutral egg phosphatidylcholine liposomes.