The integration of pharmaceutical nanocarriers with phage display techniques is emerging as a new paradigm for targeted cancer nanomedicines. We explored the direct use of landscape phage fusion proteins for the self-assembly of phage-derived binding peptides to liposomes for cancer cell targeting. The primary purpose of this study was to elucidate the targeting mechanism with a particular emphasis on the relative contributions of the two motifs that make up the landscape phage fusion protein (a binding peptide and the phage pVIII coat protein) to the targeting efficiency. Using transmission electron microscopy and dynamic light scattering, we confirmed the formation of phage-liposomes. Using FACS analysis, fluorescence microscopy, and fluorescence photospectrometry, we found that liposomes modified with MCF-7-specific phage fusion proteins (MCF-7 binding peptide, DMPGTVLP, fused to the phage PVIII coat protein) provided a strong and specific association with target MCF-7 cancer cells but not with cocultured, nontarget cells including C166-GFP and NIH3T3. The substitution for the binding peptide fused to phage pVIII coat protein abolished the targeting specificity. The addition of free binding peptide, DMPGTVLP, competitively inhibited the interaction of MCF-7-specific phage-liposomes with target MCF-7 cells but showed no reduction of MCF-7-associated plain liposomes. The proteolysis of the binding peptide reduced MCF-7 cell-associated phage-liposomes in a proteinase K (PK) concentration-dependent manner with no effect on the binding of plain liposomes to MCF-7 cells. Overall, only the binding peptide motif was involved in the targeting specificity of phage-liposomes. The presence of phage pVIII coat protein did not interfere with the targeting efficiency.