Phosphonoformate and phosphonoacetate encapsulated in liposomes have substantially greater activity against herpes simplex virus type 2 in Vero cell tissue culture than the nonencapsulated compounds at the same dose. Encapsulation of phosphonoformate in liposomes resulted in a 30-fold increase of the antiviral effect with no increase in cytotoxicity measured by inhibition of thymidine incorporation into normal Vero cells. Thus, the selectivity of the liposomal drug increased 27-fold compared with the nonencapsulated compound. Liposome encapsulation of phosphonoacetate at a ratio of 0.3 mumol/mumol of lipid resulted in a 150-fold increase of antiviral activity with a concomitant 250-fold increase in cytotoxicity. However, the selectivity of phosphonoacetate could be increased by reducing the drug-to-lipid ratio. Liposome uptake by Vero cells, measured by the cell association of a nonexchangeable radiolabeled lipid, plateaued after 24 h of incubation and saturated at 60 nmol of lipid per mg of cellular protein at a lipid concentration of 300 microM. The saturation of liposome uptake on the Vero cells may account for the 27-fold increase in selectivity observed with the liposomal phosphonoformate. The greater activity of the encapsulated phosphono compounds is most likely due to their increased transport into the cytoplasm; this occurs subsequent to the uptake and processing of the liposome in the lysosomes of the cell. Liposome encapsulation of these agents may result in superior efficacy against viral infections residing in endocytotically and phagocytically active cells such as macrophages.