Liposomes are versatile drug carriers which can be used to solve problems of drug solubility, instability and rapid degradation. Both hydrophilic and hydrophobic drugs can be associated with liposomes and special techniques have been developed for the efficient loading of weak acids and weak bases into liposomes. Liposomes can function as sustained release systems for drugs and the rate of release can be manipulated. Advantage can be taken of the substantial changes in pharmacokinetics which often accompanies the association of drugs with liposomes. New formulations of liposomes, sterically stabilised with substances like surface-grafted polyethylene glycol have circulating half-lives in humans of up to 2 days. These long circulation times allow concentration of liposomal drug in regions of increased vascular permeability like solid tumours an decreased delivery of drug to normal tissues. Alterations of the biodistribution of drugs, when they are liposomes-associated, in general leads to significant overall decreases in drug toxicity but can also increase toxicity in some tissues. The use of targeting ligands to increase the selectivity of delivery of liposomal drugs to target tissues is currently under development. An understanding of how liposome association can alter drug properties can lead to their rational development in the treatment of many diseases.