Fluorescence microscopy and assays of the cytotoxicity of liposome-encapsulated cytosine arabinoside (araC) have been used to examine the interactions of CV-1 cells with pH-sensitive liposomes, combining phosphatidylethanolamine (PE) with oleic acid or with double-chain protonatable amphiphiles, and with pH-insensitive liposomes combining phosphatidylcholine (PC) and phosphatidylglycerol (PG). Fluorescence-microscopic observations indicate that double-chain protonatable amphiphiles remain tightly associated with pH-sensitive liposomes during incubations with CV-1 cell monolayers, and that cellular uptake of liposomes is strongly promoted by transferrin coupled to the liposome surface. Liposome-encapsulated araC showed much greater cytotoxicity toward CV-1 cells than did the free drug at equivalent concentrations under the same conditions. The cytotoxicity of encapsulated araC was strongly enhanced by liposome-conjugated transferrin and was maximal using pH-sensitive liposomes combining PE with the double-chain protonatable amphiphile N-(N'-oleoyl-2-aminopalmitoyl)serine. However, the drug was also markedly more cytotoxic when encapsulated in other types of transferrin-conjugated liposomes, including pH-insensitive PC/PG/cholesterol liposomes, than in the free form. The cytotoxicity of liposome-encapsulated araC is significantly attenuated by the nucleoside transport inhibitor nitrobenzothioinosine, and fluorescence microscopy using calcein-containing liposomes provides no evidence for efficient fusion between cellular membranes and any of the types of liposomes examined here. Based on these observations, we suggest that the major mechanism for cytoplasmic delivery of liposome-encapsulated araC is the carrier-mediated transport of drug that has been released from liposomes into the endosomal and/or the lysosomal compartments.