The toxicity and antileishmanial effectiveness of a novel liposome formulation of meglumine antimoniate in mongrel dogs with visceral leishmaniasis (VL) obtained from a region where VL is endemic in Brazil have been investigated. Groups of 12 animals received by the intravenous route four doses (with 4-day intervals) of either liposomal meglumine antimoniate (group I [GI], 6.5 mg Sb/kg of body weight/dose), empty liposomes (GII), or isotonic saline (GIII). Evaluation of markers of hematopoietic, hepatic, and renal functions before and just after treatment showed no significant change. On the other hand, transitory adverse reactions, including prostration, defecation, tachypnea, and sialorrhea, were observed during the first 15 min after injections in GI and GII. Parasitological evaluation of sternal bone marrow 4 days after the last dose showed a significant reduction of parasite burden in GI, compared to the other groups. Immunocytochemical evaluations of the skin, bone marrow, cervical lymph nodes, livers, and spleens of dogs for parasites, 150 days after treatment, indicated significant parasite suppression (higher than 95.7%) in the lymph nodes, livers, and spleens of GI, compared to control groups. Feeding of Lutzomyia longipalpis phlebotomines on dogs from GI, 150 days after treatment, resulted in a significant reduction of sand fly infection efficiency, compared to feeding on animals from GII and GIII. This is the first report of both long-term parasite suppression and reduction of infectivity to sand flies in naturally infected dogs following treatment with a liposome-encapsulated drug. Importantly, this was achieved using a 20-fold-lower cumulative dose of Sb than is used for conventional antimonial treatment.