The phospholipid bilayered sphere shaped tiny vesicles, liposomes, serves as a better system for delivery of drugs across the cell membrane. The drugs are filled in the vesicles and delivered actively. With the advanced technology, liposomes are able to deliver the drug molecules effectively. Liposomes are classified on the basis of their structure, preparation methods, composition of polymers and applications. The preparation of liposomes involves various methods such as sonication, solvent extraction, detergent removal and cell extrusion. With numerous advantages, liposomes prove their uniqueness in safe drug delivery in various fields of pharmacy and medicine. This overview deals with different classifications, merits, mechanisms of drug delivery, preparation methods and pharmaceutical applications of liposomal drug delivery system.