Liposomes, closed vesicular structures consisting of one or more lipid bilayers, have generated a great deal of interest as drug delivery vehicles. In particular, they have been investigated for their ability to improve the delivery of chemotherapeutic agents to tumors, in efforts to increase therapeutic efficacy and decrease toxicity to normal cells. Development of liposomal chemotherapeutic agents has, in the past, been hindered primarily by the rapid uptake of liposomes by the reticuloendothelial system. Numerous strategies that seek to either exploit or avoid this phenomenon have been used. As a result, several liposomal chemotherapeutic agents are now available in the clinic. STEALTH, a novel liposomal system coated with polyethylene glycol, avoids uptake by the reticuloendothelial system, thus improving drug delivery to the tumor while decreasing toxicity. In pegylated liposomal doxorubicin (Doxil/Caelyx [PLD]), this delivery system encapsulates doxorubicin within polyethylene glycol-coated liposomes, leading to promising new applications for a well-established drug. Liposome-encapsulated doxorubicin citrate complex (Myocet [NPLD]), another liposomal delivery system for doxorubicin, lacks the polyethylene glycol coating, resulting in much shorter circulation times than those of PLD. Daunorubicin citrate liposome (DaunoXome [DNX]) contains daunorubicin encapsulated in a smaller liposome of a different lipid composition. It has circulation times between those of PLD and NPLD. This article reviews the advantages of liposomal delivery systems in general and the divergent approaches that have been taken in developing these agents.