Summary. Because of their antiproliferative and differentiation-inducing properties, retinoids have been used clinically as therapeutic and chemopreventive agents against squamous-cell carcinomas (SCC). As is the case for many therapeutic agents, however, the administration of retinoids is associated with toxic effects. Because encapsulation of certain drugs in lipid vesicles (liposomes) has been shown to result in reduced toxic effects, we studied the in vitro interaction of liposome-encapsulated all-trans-retinoic acid (L-ATRA) with a SCC line (MDA 886Ln) and its multicellular tumor spheroid (MTS) model. Various L-ATRA formulations were tested for incorporation of retinoic acid, toxic effects against human red blood cells, uptake and retention by tumor cells, and antiproliferative effects against SCC. Of the different formulations tested, L-ATRA containing diphosphatidyl palmitoylcholine (DPPC) and stearylamine (SA; 9:1, w/w) showed optimal drug incorporation, high stability, and minimal toxicity toward red blood cells and was highly efficacious in delivering ATRA and, thus, in inhibiting the growth of MDA 886Ln and its MTS model. DPPC: SA L-ATRA inhibited the expression of the enzyme keratinocyte transglutaminase in epidermal cells as effectively as did the free drug. These results suggest that liposomes can serve as an effective carrier system for the delivery of retinoids to SCC.