A problem associated with the intravenous delivery of vincristine concerns drug extravasation at the site of injection or infusion. This can result in extensive local soft-tissue damage. A new formulation of vincristine has recently been developed based on encapsulation of the drug in liposomes. The liposomal drug is somewhat less toxic and substantially more efficacious than free drug. The studies described here assessed, using a murine model of drug extravasation, whether vincristine encapsulation in liposomes influences drug-induced dermal toxicity. It was shown that subcutaneous injection of vincristine in liposomes does not result in the gross skin necrosis and ulceration observed following injection of free drug. Histological analysis of the dermal tissue surrounding the injection site suggests that free drug induces a pronounced inflammatory reaction as judged by the presence of infiltrating leukocytes. In contrast, the liposomal formulation of vincristine engenders a mild prolonged inflammatory condition. These toxicological studies were correlated with an evaluation of drug retention at the site of administration. It was shown using radiolabelled vincristine as a drug marker, that free vincristine is rapidly eliminated from the injection site. In contrast, the level of drug at the site of injection was far greater when the drug was given in liposomal form.