The aim of this work was to develop a new type of D-alpha-tocopheryl polyethylene glycol 1000 succinate mono-ester (TPGS) coated multi-functional (theranostic) liposomes, which contain both docetaxel and quantum dots (QDs) for cancer imaging and therapy. Non-targeting and folate receptor targeting TPGS coated theranostic liposomes were prepared by the solvent injection method and characterized for their particle size, polydispersity, zeta potential, surface chemistry and drug encapsulation efficiency. MCF-7 breast cancer cells of folate receptor overexpression were employed as an in vitro model to assess cellular uptake and cytotoxicity of the drug and QDs loaded liposomes. The mean particle size of the non-targeting and the targeting liposomes was found to be 202 and 210 nm, respectively. High resolution field emission transmission electron microscopy (FETEM) confirmed the presence of quantum dots in the peripheral hydrophobic membranes of the liposomes. The qualitative internalization of multi-functional liposomes by MCF-7 cells was visualized by confocal laser scanning microscopy (CLSM). The IC50 value, which is the drug concentration needed to kill 50% cells in a designated time period, was found to be 9.54 ± 0.76, 1.56 ± 0.19 and 0.23 ± 0.05 μg/ml for the commercial Taxotere(®), non-targeting and targeting liposomes, respectively after 24 h culture with MCF-7 cells. The targeting multi-functional liposomes showed greater efficacy than the non-targeting liposomes and thus great potential to improve the cancer imaging and therapy.