This study was aimed at developing a liposome delivery system for a new and potential antitumor lipophilic prodrug of 5-fluorouracil (5-Fu)-N(3)-O-toluyl-fluorouracil (TFu), intended to improve the bioavailability and therapeutic efficacy of 5-Fu by oral and intravenous administration. TFu-loaded liposomes were prepared by a modified film dispersion-homogenization technique, the formulation and manufacture parameters were optimized concerning the drug encapsulation efficiency. TFu-loaded liposomes were characterized according to particle size, size distribution, zeta potential, drug entrapment efficiency, drug loading and physical stability, respectively. In vitro release characteristics, in vivo pharmacokinetic properties and bioavailabilities were also investigated. The formulated liposomes were found to be relatively uniform in size (400.5 +/- 9.6 nm) with a negative zeta potential (-6.4 +/- 0.8 mV). The drug entrapment efficiency and loading were (88.87 +/- 3.25%) and (8.89 +/- 0.19%), respectively. The physical stability experiments results indicated that lyophilized TFu-loaded liposomes were stable for at least 9 months at 4 degrees C. In vitro drug release profile of TFu-loaded liposomes followed the bi-exponential equation. The results of the pharmacokinetic studies in mice indicated that the bioavailability of TFu-loaded liposomes was higher than the suspension after oral administration, and was bioequivalent comparing with TFu 50% alcohol solution after intravenous (i.v.) administration. These results indicated that TFu-loaded liposomes were valued to develop as a practical preparation for oral or i.v. administration.