Optical imaging offers a wide range of diagnostic modalities and has attracted a lot of interest as a tool for biomedical imaging. Despite the enormous number of imaging techniques currently available and the progress in instrumentation, there is still a need for highly sensitive probes that are suitable for in vivo imaging. One typical problem of available preclinical fluorescent probes is their rapid clearance in vivo, which reduces their imaging sensitivity. To circumvent rapid clearance, increase number of dye molecules at the target site, and thereby reduce background autofluorescence, encapsulation of the near-infrared fluorescent dye, DY-676-COOH in liposomes and verification of its potential for in vivo imaging of inflammation was done. DY-676 is known for its ability to self-quench at high concentrations. We first determined the concentration suitable for self-quenching, and then encapsulated this quenching concentration into the aqueous interior of PEGylated liposomes. To substantiate the quenching and activation potential of the liposomes we use a harsh freezing method which leads to damage of liposomal membranes without affecting the encapsulated dye. The liposomes characterized by a high level of fluorescence quenching were termed Lip-Q. We show by experiments with different cell lines that uptake of Lip-Q is predominantly by phagocytosis which in turn enabled the characterization of its potential as a tool for in vivo imaging of inflammation in mice models. Furthermore, we use a zymosan-induced edema model in mice to substantiate the potential of Lip-Q in optical imaging of inflammation in vivo. Considering possible uptake due to inflammation-induced enhanced permeability and retention (EPR) effect, an always-on liposome formulation with low, non-quenched concentration of DY-676-COOH (termed Lip-dQ) and the free DY-676-COOH were compared with Lip-Q in animal trials.