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Background The growth, metastasis and treatment sensitivity of tumors can be strongly influenced by Tumor-associated fibroblasts (TAFs) in the microenvironment. Effective cancer therapies may need to target not only the tumor cells directly but also the TAFs that protect them. Results We developed and validated a novel drug delivery system consisting of micelles-in-liposomes loaded with the anti-cancer drug betulinic acid and the anti-fibrosis drug celastrol. The folic acid was chosen as targeting ligands to modify the liposomes for target tumor cells. First, the liposomes released celastrol into the extracellular matrix to induce apoptosis of TAFs and thereby reduce the cellular density and collagen content of the matrix. This matrix “loosening” then helped betulinic acid enter tumor cells. The co-loaded nanoformulation proved more effective against tumor growth in mice than formulations with either drug on its own. Conclusion Targeting TAFs with celastrol sensitizes tumor cells to chemotherapy, increasing the efficacy of betulinic acid. The combination of drugs targeting tumor cells and TAFs may lead to more effective therapies against various cancers.