In this review article, discussion was made about liposomes. These are the one amongst the various drug delivery system used to target the drug to particular tissue. Liposomes were spherical shaped vesicles that consist of phospholipids and cholesterol. Due to their size and hydrophobic and lipophilic character they are very promising system for drug delivery. This novel drug delivery system aims to target the drug directly onto the site of action. Liposomes are very biocompatible and stable and they also have unique property to entrap both the hydrophilic drug and the lipophilic drug to its compartment and lead to the controlled release effect. In this article various techniques for the preparation of liposomes, advantages and limitations was discussed in detail. Liposomal gel preparation and evaluation was also elaborated.