Poly(ethylene glycol)-phosphatidylethanolamine (PEG-PE) conjugates have been introduced in liposomal compositions. The resulting large unilamellar vesicles were subjected to the action of phospholipase C. Enzyme-promoted vesicle aggregation and fusion were assayed in liposomes containing various proportions of PEG-PE. At PEG-PE concentrations above 1 mol% the rate of phospholipid hydrolysis decreases, perhaps because the PEG moiety hinders the enzyme from reaching the membrane surface. At concentrations above 0.1 mol% vesicle aggregation occurs at a slower rate, presumably because of the repulsive barrier properties or surface-grafted PEG. Lipid mixing decreases in parallel with vesicle aggregation. Finally, liposomal fusion rates measured as mixing of vesicle aqueous contents are decreased at or even below 0.1 mol%. The latter inhibition is due, apart from the reduced rates of lipid hydrolysis, vesicle aggregation and lipid mixing, to a PEG-PE-based stabilization of the lipid bilayer structure. Thus the observed low rates of contents mixing arise from three combined and independent inhibitory effects of PEG-PE.