1. The aim of the present study was to understand the benefit of liposomal dry powder for inhalation (LDPI) of ketotifen fumarate (KF) over plain drug dry powder for inhalation as a pulmonary targetted drug-delivery system. 2. The KF liposomes, composed of egg phosphatidyl choline and cholesterol, were prepared by the lipid film hydration technique. The liposomal dispersion was freeze dried and formulated to a dry powder for inhalation. Values of 89.0-65.3% drug entrapment of freeze-dried liposomes were estimated in prepared batches. 3. Rehydrated KF liposomes formed by the hydration of LDPI or the plain KF solution was delivered to rat lungs by intratracheal instillation. Simultaneous monitoring of drug levels in the bronchoalveolar lavage and lung tissue enabled assessment of pulmonary drug disposition. 4. Cumulative drug levels in lung tissue after intratracheal administration revealed that with liposomes targetting factors were between 1.36 and 1.54. The maximal drug concentration in lung homogenate for LDPI was 42.0 micro g compared with 73.6 micro g for plain drug solution. 5. Similarly, the time to reach maximum drug concentration in the lung homogenate for liposomal dry powder was 9-12 h compared with 3 h for plain drug. 6. Hence, the use of LDPI of KF was found to provide desired drug levels in the lung for a long time and thereby increased pulmonary targetting 7. This is expected to enhance the therapeutic index of the drug and probably reduce the dose administered and the cost of therapy.