Doxil, also known as Caelyx, is an established liposomal formulation of doxorubicin used for the treatment of ovarian cancer, sarcoma and multiple myeloma. While showing reduced doxorubicin related toxicity, Doxil does not greatly improve clinical outcome. To become biologically active, doxorubicin needs to be released from its carrier. Uptake and breakdown of the liposomal carrier and subsequent doxorubicin release is not fully understood and in this study we explored the hypothesis that Doxil is taken up by tumor cells and slowly degraded intracellularly. We investigated the kinetics of liposomal doxorubicin (Doxil) in vitro as well as in vivo by measuring cytotoxic effect, intracellular bioavailability and fate of the carrier and its content. To prevent fixation artifacts we applied live cell imaging in vitro and intravital microscopy in vivo. Within 8h after administration of free doxorubicin, 26% of the drug translocated to the nucleus and when reaching a specific concentration killed the cell. Unlike free doxorubicin, only 0.4% of the doxorubicin added as liposomal formulation entered the nucleus. Looking at the kinetics, we observed a build-up of nuclear doxorubicin within minutes of adding free doxorubicin. This was in contrast to Doxil showing slow translocation of doxorubicin to the nucleus and apparent accumulation in the cytoplasm. Observations made with time-lapse live cell imaging as well as in vivo intravital microscopy revealed the liposomal carrier colocalizing with doxorubicin in the cytoplasm. We also demonstrated the sequestering of liposomal doxorubicin in the lysosomal compartment resulting in limited delivery to the nucleus. This entrapment makes the bioavailable concentration of Doxil-delivered doxorubicin significantly lower and therefore ineffective as compared to free doxorubicin in killing tumor cells.