Homogeneous preparations of human alveolar macrophages (AM) were obtained by bronchoalveolar lavage of the lungs of healthy nonsmokers. These AM exhibited a low level of spontaneous cytolytic activity against allogeneic A375 melanoma cells. Tumoricidal activity of AM could be generated and/or augmented by incubation in vitro with either lipopolysaccharides (LPS) or muramyl dipeptide (MDP). MDP derivatives were encapsulated within multilamellar (MLV) liposomes composed of phosphatidylcholine-phosphatidylserine (PC/PS). Dose-response experiments established that liposome-encapsulated MDP augmented the tumoricidal activity of AM at concentrations about 100 times lower than free MDP in the medium. AM activated by MLV containing MDP destroyed allogeneic tumor cell lines, but did not affect cultures of normal, non-neoplastic cells. An inactive derivative, MDP-L, encapsulated in MLV liposomes did not potentiate the tumoricidal activity of AM. We conclude that human AM respond to MDP in vitro and that liposomes containing MDP are far more efficient than unencapsulated, free MDP for enhancing the tumoricidal activity of human AM.