Triamcinolone acetonide-21-palmitate was synthesized and incorporated into liposomes for intra-articular treatment of an experimentally-induced arthritis in the knee joints of rabbits. The liposomal formulation was more efficient than free triamcinolone acetonide in solution in suppressing the arthritis. Using radioactive tracers, it was found that triamcinolone acetonide-21-palmitate incorporated into liposomes was retained in the articular cavity, together with the liposomal lipids, for a much longer period than free triamcinolone acetonide, and this correlated with its anti-inflammatory effect.