In this review we have attempted to highlight each of the major areas of interest in liposome-cell interactions: the purely physical chemical, the cell biological, and the medical. Liposomes can be generated in a number of ways and are classified as small unilamellar, large unilamellar, and multilamellar vesicles. Although liposomes are easy to prepare, it is important to consider the effects of impurities, and also the possible changes in liposome properties with time (particularly at or below the phase transition temperature). Intelligent application of liposomes to cell biological and clinical problems requires an understanding of their mechanisms of interaction with cells. The mechanisms thus far delineated, largely by studies in vitro, are fusion, endocytosis, lipid transfer, and stable adsorption. In practice, demonstrating the occurrence of a given mechanism in an actual system is difficult because these are not mutually exclusive. Cell type, conditions of incubation, and liposome properties (charge, fluidity, size) are important in determining mechanism and appear to organize the literature effectively. However, this may be an oversimplification resulting from the sketchiness of current information. Liposomes have been used in cell biology to alter the phospholipid and cholesterol composition of cells, to bypass the membrane permeability barrier to normally impermeant solutes, and to promote cell-cell fusion. Perhaps the most fruitful of these applications has been the alteration of cholesterol, which can result in changes in cell permeability and morphology. On the other hand, delivery into cells of liposome-entrapped, water-soluble materials has not yet proved an effective tool in cell biology; delivery, and consequent physiological changes, have been demonstrated, but generally to answer questions about liposome-cell interactions, not to answer questions about the cells. Much of the current interest in liposomes derives from their potential applications in vivo. Liposomes are envisioned as pharmacological capsules for delivery of therapeutic agents in treatment of such conditions as diabetes, enzyme deficiencies, heavy metal poisoning, and neoplasms. Although much of the literature to date has been concerned with the end applications, it seems clear that a more systematic approach to the pharmacokinetics of liposomes will be necessary. In particular, such aspects as their leakage rates and their ability to cross cell and anatomical barriers require further study. Targeting of liposomes to particular cells or tissues will be essential for many applications. Finally, it must be remembered that all of these in vivo applications of liposomes are future tense; as with other technologies, passage from demonstration of the phenomenon to practical application is likely to be arduous.