Antiproliferative effects of free retinoic acid (RA) and liposome-encapsulated RA (RAlp) were compared in a squamous carcinoma system using both monolayer cells and multicellular tumor spheroids (MTS), an in-vivo-like model with three-dimensional histological structure. Initial studies examined the effect of lipid composition on the efficiency of RA encapsulation and on the subsequent toxicity of RAlp to red blood cells. In 5-day growth assays for monolayer cells, RA and RAlp (1 microM-0.1 nM) produced similar growth inhibition. In 6-day growth assays for MTS, RAlp was shown to have increased effectiveness. Liposomal uptake by the squamous carcinoma cells was examined by culturing monolayers and MTS with fluorescence-tagged liposomes and examining them under fluorescence microscopy between days 1 and 6. Phagocytosed liposomes were present, but their low levels suggested that other mechanisms of drug delivery such as adsorption, fusion or direct lipid transfer probably occurred for RAlp. Histological examination of MTS showed that RA and RAlp produced similar alterations. In this squamous carcinoma system, liposomes are effective in delivering retinoic acid and in producing biological effects in monolayer cells and within the three-dimensional structure of MTS.