Liposomes are phospholipid vesicles that have been used as carriers of antigens and adjuvants. Lipid A, the endotoxic moiety of Gram-negative bacterial lipopolysaccharide is a potent adjuvant and incorporation into liposomes essentially reduces the endotoxic activity of lipid A. In this study, we analyzed the effect of liposomal lipid A [L(LA)] on the MHC class I antigen processing machinery in murine antigen presenting cells (APCs). L(LA) enhanced the surface expression of MHC class I, class II, CD80, and CD86 molecules, induced the secretion of IFN-gamma, IL-12p40, TNF-alpha and IL-10, and caused a shift in the proteasome profile from constitutive to immunoproteasomes as observed by the induction of beta2i, beta5i, PA28alpha, and PA28beta subunits. L(LA) acts through the production of IFN-gamma as demonstrated with APCs generated from IFN-gamma knockout mice. L(LA) therefore appears to act as an intracellular adjuvant by upregulating the antigen processing machinery, which could result in efficient antigen presentation.