Encapsulation of indomethacin into egg phosphatidylcholine (EPC) monophasic vesicles (MPV) or into stable plurilamellar vesicles (SPLV) before oral administration to rats substantially reduced or eliminated the gastric and intestinal ulceration normally associated with ingestion of this drug. Ulcers were assessed by the 4-hour single-dose gastric ulceration model and the 4- or 14-day repeated-dose intestinal ulceration model, using microscopic/planimetric quantitation. Oral dosages of up to 10 mg/kg of indomethacin in polyethylene glycol-400 resulted in substantial gastric ulceration, but not when given in methylcellulose suspension or as EPCMPV. Severe intestinal ulcers resulted following oral administration of indomethacin in either vehicle at daily 3-4-mg/kg doses, but did not result from EPCMPV formulations, whether dosed for 4 days or 14 days. Oral administration of pH-sensitive indomethacin liposomes constructed from cholesterol hemisuccinate resulted in loss of the protective action. Indomethacin-MPV showed both comparable bioactivity and comparable blood levels of the drug when contrasted with free drug in vehicles. Biodistribution studies demonstrated that when delivered from liposomes, drug and phospholipid are rapidly cleared through the stomach but then are differentially absorbed. Empty EPCMPV given by mouth also offered some protection against ulcers induced by systemic (subcutaneous) introduction of indomethacin, although better protective action was noted when the drug was first liposome-encapsulated and then given orally. The application of liposomes to the development of nonsteroidal antiinflammatory drugs that have minimal gastrointestinal side effects is discussed.