A novel nanocrystal formulation of hydrophobic drugs has been developed for cancer therapy. The new method, called a three-phase nanoparticle engineering technology (3PNET), includes three phases: phase 1, amorphous precipitate; phase 2, hydrated amorphous aggregate; and phase 3, stabilized nanocrystal. The 3PNET has been applied to two anticancer drugs, paclitaxel (PTX) and camptothecin (CPT), using Pluronic F127 (F127) polymer as a single excipient. The nanocrystals encapsulated over 99% of the drug with a high ratio of drug to excipient. The nanocrystal formulation of PTX did not induce hemolysis at pharmacologically relevant concentrations. Antitumor activity in two tumor models, human lung cancer and murine breast cancer, demonstrated that intravenously injected nanocrystals significantly inhibited the tumor growth. The nanocrystals also showed significant therapeutic effects via oral administration. In addition, the nanocrystals could be further modified for targeted delivery of PTX by conjugating a folate ligand to F127. The new nanomedicine formulations show clear potential for clinical development because of the excellent antitumor activity, low toxicity, and the ease of scale-up manufacture. The formulation method may apply to other hydrophobic drugs.