Microfluidics is a widely used tool to generate droplets and vesicles of various kinds in a controlled and high-throughput manner. Liposomes are simplistic cellular mimics composed of an aqueous interior surrounded by a lipid bilayer; they are valuable in designing synthetic cells and understanding the fundamentals of biological cells in an in vitro fashion and are important for applied sciences, such as cargo delivery for therapeutic applications. This article describes a detailed working protocol for an on-chip microfluidic technique, octanol-assisted liposome assembly (OLA), to produce monodispersed, micron-sized, biocompatible liposomes. OLA functions similarly to bubble blowing, where an inner aqueous (IA) phase and a surrounding lipid-carrying 1-octanol phase are pinched off by surfactant-containing outer fluid streams. This readily generates double-emulsion droplets with protruding octanol pockets. As the lipid bilayer assembles at the droplet interface, the pocket spontaneously detaches to give rise to a unilamellar liposome that is ready for further manipulation and experimentation. OLA provides several advantages, such as steady liposome generation (>10 Hz), efficient encapsulation of biomaterials, and monodispersed liposome populations, and requires very small sample volumes (~50 µL), which can be crucial when working with precious biologicals. The study includes details on microfabrication, soft-lithography, and surface passivation, which are needed to establish OLA technology in the lab. A proof-of-principle synthetic biology application is also shown by inducing the formation of biomolecular condensates inside the liposomes via transmembrane proton flux. It is anticipated that this accompanying video protocol will facilitate the readers to establish and troubleshoot OLA in their labs.