The release of fluorescein isothiocyanate labeled bovine serum albumin (FITC-BSA) from alginate-microencapsulated liposomes was studied to evaluate the properties of this system for controlled drug delivery. Liposomes composed of phosphatidylcholine (PC) and cholesterol (Chol) (molar ratio 7:3) and of PC, phosphatidylglycerol (PG), and cholesterol (6:1:3) were encapsulated in alginate (Alg) crosslinked with Ca(2+) (Ca-Alg), Al(3+) (Al-Alg), and Ba(2+) (Ba-Alg). Capsules were coated with poly(l-ornithine) followed by a final alginate coat. A rapid initial burst of protein release was observed from liposomes encapsulated in Ca-Alg and Al-Alg. No burst was observed when liposomes were encapsulated in Ba-Alg, indicating that the crosslinking ions could significantly affect the release of entrapped protein. Also, the release from encapsulated liposomes varied significantly with liposome composition, especially with Ca-Alg as observed with encapsulation of PC, dioleoylphosphatidylcholine (DOPC), and DOPC/Chol liposomes. Cholesterol increased the leakiness of the liposomes after encapsulation. In all cases, the release from microencapsulated liposomes was much faster than that from free liposomes suggesting an interaction between the liposomes and the alginate. Differential scanning calorimetry supports the hypothesis that alginate was inserted into the lipid bilayer resulting in a rapid release of protein from microencapsulated liposomes. Moreover, it was observed that the degree of interaction between liposomes and alginate varied with liposome composition.