Drug carriers such as liposomes provide a means to alter the biodisposition of drugs and to achieve concentration-time exposure profiles in tissue or tumor that are not readily accomplished with free drug. These changes in biodisposition can improve treatment efficacy. For hydrophobic drugs, incorporation in liposome carriers can increase drug solubility markedly. The taxanes paclitaxel (taxol) and docetaxel (Taxotere) are members of one of the most important new classes of oncology drugs. However, their poor solubility presents pharmaceutical challenges, and emerging data suggest that specific tissue exposure profiles, such as low drug concentrations for extended times, can enhance beneficial antitumor mechanisms. Incorporation of the taxanes into liposomes eliminates not only the toxic effects of cosolvents required to administer these drugs clinically but also increases drug efficacy in animal tumor models, usually through a reduction in dose-limiting tissue toxicities. Although the taxanes are poorly water soluble, the preparation of physically stabile taxane-liposome formulations requires the balancing of three factors: (1) the drug:lipid ratio, (2) the liposome composition, and (3) the duration of storage in aqueous media. Biophysical evaluation of formulation characteristics, principally using circular dichroism (CD) and differential scanning calorimetry (DSC), can provide the information necessary to develop stable taxane-liposome formulations. These techniques provide information on drug-drug and drug-lipid interactions that underlie the events that lead to taxane formulation instability. Owing to the unusually low solubility of the taxanes, special consideration is necessary to devise methods for resolving drug-containing liposomes from released or precipitated drug to obtain reliable estimates of drug incorporation and retention in liposomes.