A novel liposomal formulation was developed for the encapsulation of the oligopeptide leuprolide (GlpHisTrpSerTyr‐D‐LeuLeuArgProNHEt), a potent analogue of gonadotropin releasing hormone used in the treatment of advanced prostate cancer, endometriosis and precocious puberty. Leuprolide was synthesized using solid phase methodology on a {3‐[(ethyl‐Fmoc‐amino)‐methyl]‐1‐indol‐1‐yl}‐acetyl AM resin and Fmoc/tBu chemistry. The new liposomal formulation, called ‘liposomes in liposomes’ is composed of egg phosphatidylcholine:dipalmitoylphosphatidylglycerol in a molar ratio of 98.91:1.09 (internal liposomes) and egg phosphatidylcholine:dipalmitoylphosphatidylglycerol:cholesterol in a molar ratio of 68.71:0.76:30.53 (external liposomes). It offers high encapsulation efficiency (73.8% for leuprolide); it can provide new delivery characteristics and it may have possible advantages in future applications regarding the encapsulation and delivery of bioactive peptides to target tissues. Furthermore, the physicochemical characteristics (size distribution and ζ‐potential) of the liposomal formulations and the thermal effects on leuprolide in model lipidic bilayers composed of dipalmitoylphosphatidylcholine were studied using differential scanning calorimetry. Finally, the dynamic effects of leuprolide in an egg phosphatidylcholine/cholesterol system were examined using solid state ¹³C MAS NMR spectroscopy. Copyright © 2005 European Peptide Society and John Wiley & Sons, Ltd.