No marketed inhaled products currently use sustained release formulations such as liposomes to enhance drug disposition in the lung, but that may soon change. This review focuses on the interaction between liposomal formulations and the inhalation technology used to deliver them as aerosols. There have been a number of dated reviews evaluating nebulization of liposomes. While the information they shared is still accurate, this paper incorporates data from more recent publications to review the factors that affect aerosol performance. Recent reviews have comprehensively covered the development of dry powder liposomes for aerosolization and only the key aspects of those technologies will be summarized. There are now at least two inhaled liposomal products in late-stage clinical development: ARIKACE(®) (Insmed, NJ, USA), a liposomal amikacin, and Pulmaquin™ (Aradigm Corp., CA, USA), a liposomal ciprofloxacin, both of which treat a variety of patient populations with lung infections. This review also highlights the safety of inhaled liposomes and summarizes the clinical experience with liposomal formulations for pulmonary application.