To reduce the injection frequency and toxicity of intravenously administered protein drugs, it is necessary to develop safe and sustained injectable delivery systems. In this study, to evaluate liposomes as safe and sustained injectable delivery systems of proteins, we chose insulin as a model protein drug and tested its incorporation efficiency and pharmacodynamics in various liposomes with and without polyethylene glycol (PEG)-derivatized phospholipid. The liposomes coated with PEG showed 3-fold higher efficiency of insulin incorporation than did the liposomes without PEG. Moreover, among the liposomes coated with PEG, dipalmitoylphosphocholine (DPPC) liposomes showed higher incorporation efficiency than did dimyristoylphosphocholine (DMPC) liposomes. For pharmacodynamic study, insulin (2 IU/kg) was administered in various formulations, such as insulin alone in phosphate-buffered saline and insulin in the DPPC liposomes with and without PEG, to streptozotocin-treated diabetic rats. The pharmacodynamics of insulin alone, however, could not be measured due to the immediate death of rats caused by hypoglycemic shock. In contrast, all the rats treated with liposomal insulin survived, probably by the sustained release of insulin from liposomes. Pharmacodynamics of liposomal insulin showed that PEG-coated liposomes induced the lowest level of blood glucose-the nadir-1 h later than did the liposomes without PEG. These results indicate that PEG-coated liposomes could be developed as a relatively safe and sustained injectable delivery system for insulin with improved incorporation efficiency. Moreover, it is suggested that the liposomes coated with PEG might have a potential as safe injectable delivery systems for other protein and peptide drugs.