Liposomes have been used in insulin therapy as a means to selectively target insulin to the liver, enhance oral absorption of insulin, and prolong insulin action. Liposomes are an effective means of delivering insulin specifically to hepatocytes. The usefulness of hepatically targeted liposomes in the treatment of diabetes is restricted due to the requirement that they be given intravenously, the dilute concentration of insulin present in liposomal preparations, and the cost associated with liposome production. Encapsulating insulin in liposomes results in enhanced oral absorption of insulin. The high doses of liposome-entrapped insulin required perorally, coupled with extreme variability in the glycemic response to peroral liposomes, limits the value of peroral liposomal insulin as a viable diabetic therapy. Insulin action can be sustained via encapsulation of insulin in liposomes given subcutaneously. Most insulin appears to remain at the injection site, and the presence of a lipid matrix for subcutaneous insulin delivery raises concerns over enhanced antigenicity of liposomal insulin given subcutaneously. Viewed in the light of the limitations outlined above, the contribution of liposomal insulin to understanding and treatment of diabetes mellitus will probably be via use of hepatically targeted liposomes as a pharmacological probe to decipher the role of the liver in the metabolic complications associated with diabetes mellitus.