Recently, the entrapment of hydrophobic drugs in the form of water-soluble drug-cyclodextrin (CD) complex in liposomes has been investigated as a new strategy to combine the relative advantages of CDs and liposomes into one system, namely drug-in-CD-in-liposome (DCL) systems.For DCLs preparation, an overall understanding of the interaction between CDs and lipid components of liposomes is necessary and valuable. The present article reviews the preparation, characterization and application of DCLs, especially as antitumor or transdermal carriers. Double-loading technique, an interesting strategy to control release and increase drug-loading capacity, is also discussed.DCL approach can be useful in increasing drug solubility and vesicles stability, in controlling the in vivo fate of hydrophobic drugs and in avoiding burst release of drug from the vesicles. To obtain stable DCL, the CDs should have a higher affinity to drug molecules compared with liposomal membrane lipids. DCLs prepared by double-loading technique seem to be a suitable targeted drug delivery system because they have a fast onset action with prolonged drug release process and the significantly enhanced drug-loading capacity. In particular, DCLs are suitable for the delivery of hydrophobic drugs which also possess volatility.