A new type of device can prepare liposomes continuously, in large quantities and with excellent aqueous space capture efficiency. At initial lipid concentration of 300 mumol/ml these liposomes capture approx. 75% of cytosine arabinoside used as an aqueous space marker. Liposome size can be reduced by increasing the number of times the preparations are recycled through the microemulsifier. Liposomes less than 0.1 micron in diameter, as shown by electron microscopy, can be made easily. Liposomes prepared at 300 mumol/ml, composed of phosphatidylglycerol/phosphatidylcholine/cholesterol in a 0.1:0.4:0.5 molar ratio leaked less than 1% of entrapped cytosine arabinoside (Ara-C) at 4 degrees C, and less than 10% Ara-C at 37 degrees C plus serum, over a 48 h period. These liposomes could be useful for a number of applications including diagnostics, therapeutics and model membrane studies.