Rabbits with a bilateral antigen-induced arthritis were injected intra-articularly in one joint with methotrexate as the free drug or entrapped in liposomes. Free methotrexate (1 mg) injected as a single dose at the time of antigen challenge, suppressed the development of joint swelling and the rise in skin surface temperature of treated joints by 20-30% compared with contralateral control arthritic joints. The beneficial effect of methotrexate occurred within 24 h of injection and was maintained for at least 56 days. However, methotrexate was ineffective in suppressing arthritis when injected 7 days after antigen challenge. Liposomal methotrexate suppressed the development of arthritis at a dose one-tenth that of the free drug and it was also effective in suppressing arthritis of 7 days duration, although significant beneficial effects of liposomal methotrexate were delayed for 10 to 14 days after injection. Neither free nor liposomal methotrexate was effective in suppressing an established arthritis, having no significant effect on joint swelling or skin surface temperature when injected 21 and 35 days after antigen challenge. At the end of the study, 8 or 9 weeks after induction of arthritis, the joints were examined morphologically and histologically. Free methotrexate generally had no significant effect on joint pathology. However, liposomal methotrexate suppressed the development of synovial hyperplasia, cellular infiltration and the erosion of cartilage and bone when injected at the time of antigen challenge or 7 days later, but affected none of these parameters in an established arthritis of 3 weeks duration.