Incorporation of amphotericin B into small unilamellar liposomes (AmBisome) alters the pharmacokinetic properties of the drug, but allows it to retain significant in vitro and in vivo activity against fungal species, including Candida, Aspergillus and Cryptococcus, and parasites of the genus Leishmania. Used as prophylaxis against fungal infections in immunocompromised patients, liposomal amphotericin B appeared to reduce the incidence of both fungal colonisation and proven fungal infections, but did not affect overall survival. Empirical therapy with liposomal amphotericin B in immunocompromised adults or children with suspected fungal infections was at least as effective as therapy with conventional amphotericin B. In the largest noncomparative studies, liposomal amphotericin B produced mycological eradication in 40 and 83% of patients with proven Candida infections and 41 and 60% with proven Aspergillus infections; however, these studies included relatively few patients. Mycological eradication rates of 67 to 85% in patients with cryptococcal meningitis have been reported. Liposomal amphotericin B is an effective treatment for visceral leishmaniasis in immunocompetent adults and children, including those with severe or drug-resistant disease. The drug also produces good response rates in immunocompromised patients; however, relapse rates in these patients are high. Liposomal amphotericin B is generally well tolerated. Few patients require discontinuation or dose reduction of the drug because of adverse events. The most frequently reported adverse events are hypokalaemia, nephrotoxicity and infusion-related reactions; however, these occur significantly less often after liposomal amphotericin B than after the conventional formulation of the drug. The acquisition cost of liposomal amphotericin B is higher than that of conventional amphotericin B. Cost-effectiveness analysis did not clearly show an economic benefit for empirical liposomal amphotericin B antifungal therapy in adults; however, one model suggested that initial empirical therapy with the liposomal formulation in children may cost less per cure than initial therapy with the conventional formulation. Liposomal amphotericin B appears to be an effective alternative to conventional amphotericin B in the management of immunocompromised patients with proven or suspected fungal infections. Use of the drug is facilitated by its greatly improved tolerability profile compared with conventional amphotericin B. Because of this, liposomal amphotericin should be preferred to conventional amphotericin B in the management of suspected or proven fungal infections in immunocompromised patients with pre-existing renal dysfunction, amphotericin B-induced toxicity or failure to respond to conventional amphotericin B. Liposomal amphotericin B may also be considered for first- or second-line treatment of immunocompetent patients with visceral leishmaniasis.