Interaction of colistin and colistin methanesulfonate (CMS) with liposomes has been studied with the view to understanding the limitations to the use of liposomes as a more effective delivery system for pulmonary inhalation of this important class of antibiotic. Thus, in this study, liposomes containing colistin or CMS were prepared and characterized with respect to colloidal behavior and drug encapsulation and release. Association of anionic CMS with liposomes induced negative charge on the particles. However, degradation of the CMS to form cationic colistin over time was directly correlated with charge reversal and particle aggregation. The rate of degradation of CMS was significantly more rapid when associated with the liposome bilayer than when compared with the same concentration in aqueous solution. Colistin liposomes carried positive charge and were stable. Encapsulation efficiency for colistin was approximately 50 , decreasing with increasing concentration of colistin. Colistin was rapidly released from liposomes on dilution. Although the studies indicate limited utility of colistin or CMS liposomes for long duration controlled-release applications, colistin liposomes were highly stable and may present a potential opportunity for coformulation of colistin with a second antibiotic to colocalize the two drugs after pulmonary delivery.