In the present study, green tea extract was encapsulated in liposomes based on the Mozafari method (with no organic solvents) and characterized for its physicochemical properties (encapsulation efficiency, particle size, and Z‐potential). Encapsulation efficiency, particles size, and Z‐potential were determined to be 51.34, 419 nm, and ‐57 mV, respectively. Total polyphenol content of the green tea by Folin‐Ciocalteu's phenol reagent was measured as 164.2 mg gallic acid/g extract. Free radical scavenging activities of free and liposomal extracts were 90.6 and 93.4%, respectively, using the DPPH method. Antioxidant activity of the ethanolic extract of green tea in free and liposomal forms with concentrations of 200, 600, and 1000 mg L−1 were assessed on oxidative stability of the canola oil at 60 °C for 0, 4, 8, 12, 16, 20, 24, 28, and 32 days. Results were compared to results of synthetic antioxidant butylated hydroxytoluene at 200 mg L−1. To assess antioxidant activity on canola oil stability, peroxide, thiobarbitoric acid, and anisidine values were assessed as well as the total oxidation value and rancimat test. Results showed that the liposomal green tea extract was more effective than the free extract. Furthermore, a 600 mg L−1 concentration of the green tea extract showed a significant antioxidant activity, compared to other extract concentrations. Increasing storage time and various concentrations of the ethanolic green tea extracts included significant effects on canola oil stability (P ≤ 0.05). Results demonstrated that the green tea extract could be used as an effective antioxidant. Free and liposomal extract (at 600 mg L−1) resulted in stronger functionality than the synthetic antioxidant butylated hydroxytoluene.