We have investigated the efficacy of liposome encapsulated N-(phosphonacetyl)-L-aspartic acid (PALA) for the treatment of the C-26 murine colon tumor in Balb/c mice, and have compared it in this regard to free PALA. Healthy female Balb/c mice and C-26 tumor inoculated mice were randomized for the maximum tolerated dose (MTD) study and the in vivo therapy study, and the survival was measured after a single intraperitoneal injection of the drug. The maximum tolerated dose for intraperitoneally administered drug was found to be 750 mg/Kg for free PALA, and was greater than the maximum dose possible (150 mg/Kg) for PALA encapsulated in both DSPC and DSPG liposomes. When drug was administered one day after tumor implantation, 150 mg/Kg of PALA in DSPG liposomes increased the percentage of tumor bearing mice surviving at day 36 from 8% (buffer control) to 88%. In contrast, 150 mg/Kg free PALA increased the day 36 surviving percentage to only 25%. A 150 mg/Kg dose of PALA in DSPC liposomes increased the surviving percentage to 50%, while a 75 mg/Kg dose of PALA in sterically stabilized liposomes increased the surviving percentage to 78%. These results show that PALA in negatively charged or sterically stabilized liposomes can exhibit considerably greater potency than free PALA in C-26 tumor bearing mice.