This review presents the current knowledge on the interaction of lipophilic, poorly water soluble drugs with liposomal and biological membranes. The center of attention will be on drugs having the potential to dissolve in a lipid membrane without perturbing them too much. The degree of interaction is described as solubility of a drug in phospholipid membranes and the kinetics of transfer of a lipophilic drug between membranes. Finally, the consequences of these two factors on the design of lipid-based carriers for oral, as well as parenteral use, for lipophilic drugs and lead selection of oral lipophilic drugs is described. Since liposomes serve as model-membranes for natural membranes, the assessment of lipid solubility and transfer kinetics of lipophilic drug using liposome formulations may additionally have predictive value for bioavailability and biodistribution and the pharmacokinetics of lipophilic drugs after parenteral as well as oral administration.