The ability of liposomes containing a lipophilic muramyl dipeptide, N-acetylmuramyl-L-alanyl-D-isoglutamine-glycerol dipalmitate, to induce Kupffer cell tumoricidal activity has been investigated. Liposomal N-acetylmuramyl-L-alanyl-D-isoglutamine-glycerol dipalmitate was 16-fold more potent than liposomal N-acetylmuramyl-L-alanyl-D-isoglutamine and 2,400-fold more potent than N-acetylmuramyl-L-alanyl-D-isoglutamine in inducing Kupffer cell tumoricidal activity in vitro. A single i.v. injection of liposomes containing N-acetylmuramyl-L-alanyl-D-isoglutamine-glycerol dipalmitate was capable of inducing Kupffer cell tumoricidal activity as measured against B16-melanoma cells after Kupffer cell isolation. Maximal cytotoxic activity was obtained with 1 microgram muramyl dipeptide-glycerol dipalmitate encapsulated within liposomes: doses of 10 or 100 micrograms inhibited tumoricidal activity. Kupffer cells from mice treated with liposomes containing N-acetylmuramyl-L-alanyl-D-isoglutamine-glycerol dipalmitate remained cytotoxic for at least 6 days after injection. Liposomal N-acetylmuramyl-L-alanyl-D-isoglutamine was significantly less potent than liposomal N-acetylmuramyl-L-alanyl-D-isoglutamine-glycerol dipalmitate in inducing Kupffer cell tumoricidal activity in situ. N-Acetylmuramyl-L-alanyl-D-isoglutamine was capable of inducing Kupffer cell tumoricidal activity in vitro: its failure to induce tumoricidal activity in situ at doses of 1,000 micrograms demonstrates the utility of liposomal carriers for the in vivo activation of Kupffer cells by muramyl dipeptides.