The topical delivery of liposomally encapsulated interferon was evaluated in the cutaneous herpes simplex virus guinea pig model. Application of liposomally entrapped interferon caused a reduction of lesion scores, whereas application of interferon formulated as a solution or as an emulsion was ineffective. The method of liposomal preparation rather than the lipid composition of the bilayers appeared to be the most important factor for reducing lesion scores. Only liposomes prepared by the dehydration-rehydration method were effective. This finding implied that the dehydration and subsequent rehydration of the liposomes facilitate partitioning of the interferon into liposomal bilayers, where the drug is positioned for transfer into the lipid compartment of the stratum corneum. Liposomes do not appear to function as permeation enhancers but seem to provide the needed physicochemical environment for transfer of interferon into the skin.