The objective of the present study was to synthesize monomethoxypolyethyleneglycol-5000 cholesteryl ester [PEG-CH] as a cost-effective substitute for polyethyleneglycol-phosphatidylethanolamine and to evaluate the influence of its incorporation in liposomal bilayers for surface modification. PEG-CH was synthesized and characterized by infrared (IR), proton nuclear magnetic resonance spectroscopy ((1)H NMR), and differential scanning calorimetry (DSC) studies. Influence of incorporation of PEG-CH in liposomes was evaluated on various parameters such as zeta potential, DSC, and encapsulation efficiency of a hydrophilic drug pentoxyfylline. Conventional and PEG-CH containing pentoxyfylline liposomes were formulated and their stability was evaluated at 4°C for 3 months. PEG-CH could be successfully synthesized with good yields and the structure was confirmed by IR, DSC, and (1)H NMR. The incorporation of PEG-CH in liposomes resulted in reduction of the zeta potential and broadening of the DSC endotherm. Furthermore, incorporation of PEG-CH in liposomes decreased the encapsulation efficiency of pentoxifylline in liposomes when compared to conventional liposomes. Conventional and PEG-CH containing pentoxyfylline liposomes did not show any signs of pentoxyfylline degradation when stored at 4°C for 3 months.