Receptors for the vitamin folic acid are frequently overexpressed on epithelial cancer cells. To examine whether this overexpression might be exploited to specifically deliver liposome-encapsulated drug molecules in vitro, folate-targeted liposomes were prepared by incorporating 0.1 mol% of a folate-polyethyleneglycol-distearoylphatidylethanolamine (folate-PEG-DSPE) construct into the lipid bilayer, and were loaded with doxorubicin (DOX), an anti-cancer drug. Uptake of folate-PEG-liposomal DOX by KB cells was 45-fold higher than that of non-targeted liposomal DOX, and 1.6-times higher than that of free DOX, while the cytotoxicity was 86 and 2.7-times higher, respectively. Folate-targeting is fully compatible with PEG-coating of the liposomes, since incorporation of 4 mol% PEG2000-DSPE does not reduce the uptake or cytotoxicity of folate-PEG-liposomal DOX. Uptake of folate-PEG-liposomes was inhibited by 1 mM free folic acid but was unaffected by physiological concentrations of folate. In HeLa/WI38 co-cultures, folate-PEG-liposomes encapsulating calcein, a fluorescent dye, were found to be almost exclusively internalized by the HeLa cells which overexpress the folate receptors. We suggest that folate targeting constitutes a possible mechanism for improving the specificity of PEG-coated liposomes for cancer cells.