The aim of this study was to prepare liposomal drug delivery system of docetaxel.Docetaxel is an effective anticancer agent approved in five key cancers, but its effectiveness in clinical practice requires sub-optimal side-effect management by routine premedication with corticosteroids and antihistamines necessary to reduce intensity or incidence of adverse reactions, such as hypersensitivity reactions or fluid retention, associated to docetaxel in Tween 80, liposomal drug delivery system containing docetaxel was prepared, optimized and characterized and compared for invitro drug release study, stability study, and invitro cytotoxicity study of docetaxel incorporated in conventional and PEGylated liposomes. Liposomes were prepared by thin film hydration technique followed by membrane extrusion and probe sonication.