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This study aimed to formulate and characterize the folate receptor-targeted PEGylated liposome encapsulating bioactive compounds from Kappaphycus alvareziito enhance the anticancer activity. Twenty valued bioactive compounds (3-hydroxy benzoicacid, gallicacid, chlorogenicacid, cinnamicacid, artemiseole, hydrazine carbothioamide, etc.,) are confirmed from methanol extract of K. alvareziiusing analytical techniques like HPLC and GC–MS. The delivery of bioactive compounds of K. alvareziivia naturally overexpressed folate receptor (FR) to FR-positive breast cancer cells was studied. FR targeted PEGylated liposome was constructed by modified thin-film hydration technique using FA-PEG-DSPE/cholesterol/DSPC (5:40:55) and bioactive compounds of K. alvareziiwas encapsulated. Their morphology, size, shape, physiological stability and drug release kinetics were studied. The study reports of K. alvareziiextract-encapsulated PEGylated liposome showed spherical shaped particles with amorphous in nature. The mean diameter of K. alvareziiextract–encapsulated PEGylated and FA-conjugated PEGylated liposomes was found to be 110 ± 6 nm and 140 ± 5 nm, respectively. Based on the stability studies, it could be confirmed that FA-conjugated PEGylated liposome was highly stable in various physiological buffer medium. FA-conjugated PEGylated liposome can steadily release the bioactive compounds of K. alvareziiextract in acidic medium (pH 5.4). MTT assay demonstrated the concentration-dependent cytotoxicity against MCF-7 cells after 24 h with IC50of 81 µg/mL. Also, PEGylated liposome enhanced the delivery of K. alvareziiextract in MCF-7 cells. After treatment, typical apoptotic morphology of condensed nuclei and distorted membrane bodies was picturized. Additionally, PEGylated liposome targets the mitochondria of MCF-7 cells and significantly increased the level of ROS and contributes to the damage of mitochondrial transmembrane potential. Hence, PEGylated liposome could positively deliver the bioactive compounds of K. alvareziiextract into FR-positive breast cancer cells (MCF-7) and exhibit great potential in anticancer therapy.