Nanoscale drug delivery systems including liposomes, polymers, and other nanoparticles provide potential solutions for improved cancer therapeutics. Of these drug delivery systems, liposome-based agents, particularly liposomal anthracyclines, have had the greatest impact in oncology to date. Current liposomal drugs evolved from a number of design strategies for improved biodistribution over free drugs. Reticuloendothelial system-targeted formulations significantly reduce systemic exposure to high peak levels of free drug, but do not facilitate targeting to tumors. Passive or physiologic targeting of drugs to tumors is achievable using long-circulating liposomes, including pure lipid systems as well as surface-modified formulations designed to resist recognition and uptake by reticuloendothelial system cells. The latter, represented by pegylated or STEALTH liposomes, circulate for days as stable constructs and slowly extravasate in neoangiogenic vessels in tumors, providing a degree of passive targeting to tumor tissue. Future liposome therapeutics are building on these validated designs as well as on pharmacologic insights into their mechanisms of delivery. For example, camptothecin analogues, anti-angiogenesis agents, and antisense oligonucleotides each represent rational candidates for delivery in highly stabilized and long-circulating liposomes. For such agents, pegylated liposome delivery offers improved chemical stability of encapsulated drug, enhanced accumulation in tumors, and prolonged drug exposure. True molecular targeting can be achieved using liposomes linked to ligands such as monoclonal antibody fragments directed against cancer-associated antigens. Immunoliposomes combine antibody-mediated tumor recognition with liposomal delivery and, when designed for target cell internalization, provide intracellular drug release. Recent advances in immunoliposome design include rapid selection of phage antibody-derived scFv for targeting, and methods for conjugation of ligands to existing US Food and Drug Administration-approved liposomal drugs such as pegylated liposomal doxorubicin (Doxil/Caelxy [PLD]). An immunoliposome consisting of novel anti-HER2 scFv F5 conjugated to PLD, currently in development, selectively binds to and internalizes in HER2-overexpressing tumor cells. The modular organization of immunoliposome technology enables a combinatorial approach in which a repertoire of monoclonal antibody fragments can be used in conjunction with a series of liposomal drugs to yield a new generation of molecularly targeted agents.