We have recently begun a phase II trial in patients with osteosarcoma who developed pulmonary metastases during adjuvant chemotherapy or who presented with pulmonary metastases that persisted despite chemotherapy. Eligible patients were rendered free of visible disease by surgery. Liposome-encapsulated muramyl tripeptide phosphatidylethanolamine (MTP-PE, CGP 19835A lipid) (2 mg/m2) was infused twice weekly for 3 months. In five patients, a single tumor nodule recurred within 6 weeks after completion of therapy. These lesions were resected and submitted for pathological examination. Tissue specimens obtained after therapy were compared to those obtained before therapy. All the patients showed a histological change in the characteristics of the pulmonary tumors. In three patients, peripheral fibrosis surrounded the tumor and inflammatory cell infiltration and neovascularization were present. This is in contrast to central necrosis, with viable peripheral tumor cells and no inflammatory response observed in lesions resected following chemotherapy. In a fourth case, evidence of early fibrotic changes was found. This and the fifth case showed a change in malignant characteristics, from high grade before liposomal therapy to low grade after therapy. The present study provides evidence for a biological effect of liposomal MTP-PE.