During the past decade liposomes have been investigated extensively for their ability to improve drug utilization by the body, first in the area of chemotherapeutics and most recently in the area of ophthalmology. Liposomes are vesicle-like structures with a concentric series of alternating compartments of aqueous spaces and phospholipid bilayers. To date, liposomes have been found to both promote and reduce ocular drug absorption, indicating that a definite need exists for further studies to evaluate the interplay of drug, liposomes, and the corneal surface in determining the effectiveness of liposomes as vehicles for topically applied ophthalmic drugs. The purpose of this review is to place in perspective the role of liposomes in topical ocular drug delivery. As background material, the factors influencing ocular drug bioavailability and the features of liposomes pertinent to their effectiveness as drug carriers are reviewed.