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Yeast beta-fructofuranosidase (invertase) or (131)I-labelled albumin were entrapped into liposomes composed of phosphatidylcholine, cholesterol and phosphatidic acid. Of the beta-fructofuranosidase activity in the liposomal preparations 96-100% was latent. The following observations were made in experiments with rats injected with protein-containing liposomes. 1. After injection of beta-fructofuranosidase-containing liposomes (220 units or 1.5mg of beta-fructofuranosidase and 17.5mg of lipid), beta-fructofuranosidase activity in blood retained its latency but the activity declined to 50% of the injected dose in 1h. Within 6h much of this activity was recovered in the liver and spleen (respectively 45% and 10% of that injected). For up to 21h after injection, the mitochondrial-lysosomal fraction was the principal location of the hepatic beta-fructofuranosidase activity. 2. Lysosomal localization of liposomal protein was supported by the observed increase in the trichloroacetic acid-soluble radioactivity during incubation of the lysosome-rich fraction of the liver of rats injected with liposomes containing (131)I-labelled albumin. 3. Association of liposomal protein with lysosomes was demonstrated on subfractionation of the mitochondrial-lysosomal fraction of the liver of rats injected with beta-fructofuranosidase-containing liposomes in a Ficoll-mannitol gradient. beta-Fructofuranosidase, lysosomal and mitochondrial enzyme marker activities were found to exhibit similar distribution patterns along the gradient. However, in similar experiments with rats previously injected with Triton WR-1339 or dextran (known to alter the specific gravity of lysosomes), only beta-fructofuranosidase and lysosomal marker moved along the gradient, in strikingly similar patterns. 4. The lysosomal localization of injected liposome-entrapped material can probably be utilized in the treatment of certain disorders in man.