Polymer (PEG-PE)-coated liposomes exhibit prolonged circulation time in blood and substantial localization in Klebsiella pneumoniae-infected lung tissue in rats. Therefore, to determine the therapeutic effect, gentamicin and ceftazidime were entrapped in these liposomes and administered to rats experimentally infected with pneumonia: Relatively high and sustained concentrations of liposome-associated antibiotic in blood were observed. Compared with antibiotics alone, one dose of liposome-entrapped gentamicin or ceftazidime increased the therapeutic effect of the drugs, survival of rats, and bacterial killing in lungs. One dose of liposome-entrapped ceftazidime was as effective as a continuous 2-day infusion of nonentrapped ceftazidime. Since antibiotic-containing liposomes are stable during circulation and liposome-entrapped ceftazidime and gentamicin have low bactericidal activity in vitro, the superior therapeutic effect of the liposome-encapsulated antibiotics results from localization and subsequent degradation of liposomes and the resulting release of entrapped antibiotic at the infection site.