Current therapy of human superficial bladder cancer includes the intravesical administration of antitumor drugs and immunomodulators. The purpose of these studies was to determine whether phospholipid liposomes that bind to human bladder cancer cells can improve the delivery of interferon alpha (IFN-alpha) to neoplastic urothelium. The antiproliferative activity of free IFN-alpha and IFN-alpha encapsulated in liposomes was assessed in vitro against the human transitional cell carcinoma line 253J. The cells were exposed to free and liposome-encapsulated IFN-alpha for short periods ranging from 30 minutes to four hours, and inhibition of cell growth was determined three days later. The production of greater than 25 percent cytostasis of 253J cells by free IFN-alpha required four hours of continuous exposure. In contrast, IFN-alpha encapsulated in liposomes produced 35 percent and 60 percent cytostasis after a 30-minute and four-hour exposure, respectively. Liposome-encapsulated IFN-alpha was also effective (50 percent cytostasis) against a subline of 253J cells selected for resistance against free IFN-alpha. Liposomes containing IFN-alpha were stable in the presence of human urine. In vivo studies in mice showed that intravesical administration of radiolabeled IFN-alpha or radiolabeled liposomes did not yield significant systemic absorption and deposition in distant organs. Collectively, these results suggest that the encapsulation of IFN-alpha within multilamellar liposomes may augment its antiproliferative activity, overcome some forms of tumor cell resistance to IFN-alpha, and prove useful for intravesical therapy of superficial bladder cancer.