Over the past two decades, there has been lot of interest in the use of liposomes as lipid-based biocompatible carriers for drugs administered by the intravesical route. The lipidic bilayer structure of liposomes facilitates their adherence to the apical membrane surface of luminal cells in the bladder, and their vesicular shape allows them to co-opt the endocytosis machinery for bladder uptake after instillation. Liposomes have been shown to enhance the penetration of both water-soluble and insoluble drugs, toxins, and oligonucleotides across the bladder epithelium. Empty liposomes composed entirely of the endogenous phospholipid, sphingomyelin, could counter mucosal inflammation and promote wound healing in patients suffering from interstitial cystitis. Recent clinical studies have tested multilamellar liposomes composed entirely of sphingomyelin as a novel intravesical therapy for interstitial cystitis. In addition, liposomes have been used as a delivery platform for the instillation of botulinum toxin in overactive bladder patients. The present review discusses the properties of liposomes that are important for their intrinsic therapeutic effect, summarizes the recently completed clinical studies with intravesical liposomes and covers the latest developments in this field.