In this study, we tested the mechanisms of daunorubicin (DNR)- and the liposomal encapsulated daunorubicin (DaunoXome or DNX)-induced killing in three human leukaemic cell lines, K562, K/Bax and CEM. DNX showed less cytotoxicity in leukaemic cells than conventional DNR. The intracellular accumulation of DNX was 10 times less than conventional DNR during exposure to drugs for up to 5 h. Cell cycle analysis indicated that DNR induced concentration-dependent G2/M arrest, apoptosis and necrosis. However, DNX induced G2/M arrest and apoptosis but not necrotic cell death, even at a higher concentration. DNR- or DNX-induced activation of caspase-9 and -3 was detected at concentrations that induced apoptosis and necrosis. The sensitivity of leukaemic cells to DNR- and DNX-induced apoptosis correlated with the activation of caspases and the reduction of mitochondrial membrane potential (DeltaPsim), but not the depletion of ATP and the generation of reactive oxidative species (ROS). DNX did not provoke ROS generation and ATP depletion in leukaemic cells. We conclude that the liposomal encapsulation of DNR restricts the intracellular accumulation speed and therefore diminishes ROS generation, ATP depletion and necrotic cell death. This may have implications for the cause of cardiotoxicity seen with DNR, its main dose-limiting step.