The role of bilayerd vesicles as efficient carriers for drugs, vaccines, diagnostic agents and other bioactive agents have led to a rapid advancement in the liposomal drug delivery system. Moreover, the siteavoidance and site-specific drug targeting therapy could be achieved by formulating a liposomal product, so as to reduce the cytotoxicity of many potent therapeutic agents. This article is intended to provide an overview of liposomal drug delivery system. It has focused on the factors affecting the behavior of the liposomes in the biological environment. Various aspects related to mechanism of liposome formation, characterization and stability of the liposomal drug product were also discussed in the article. Liposomes can be used as a therapeutic tool in the fields like tumor targeting, genetic transfer, immunomodulation, skin and topical therapy.