Purpose: A lipid-based prodrug of mitomycin C [MMC; 2,3-(distearoyloxy)propane-1-dithio-4V-benzyloxycarbonyl-MMC] was designed for liposome formulation. The purpose of this study was to examine the in vitro cytotoxicity, pharmacokinetics, in vivo toxicity, and in vivo antitumor activity of this new lipid-based prodrug formulated in polyethylene glycol^coated (pegylated) liposomes. Experimental Design: MMC was released from the MMC lipid^based prodrug (MLP) by thiolytic-induced cleavage with a variety of thiol-containing reducing agents. MLP was incorporated with nearly 100% efficiency in cholesterol-free pegylated liposomes with hydrogenated phosphatidylcholine as the main component and a mean vesicle size of f90 nm.This formulation was used for in vitro and in vivo tests in rodents. Results: In vitro, the cytotoxic activity of pegylated liposomal MLP (PL-MLP) was drastically reduced compared with free MMC. However, in the presence of reducing agents, such as cysteine or N-acetyl-cysteine, its activity increased to nearly comparable levels to those of free MMC. Intravenous administration of PL-MLP in rats resulted in a slow clearance indicating stable prodrug retention in liposomes and long circulation time kinetics, with a pharmacokinetic profile substantially different from that of free MMC. In vivo, PL-MLP was f3-fold less toxic than free MMC.The therapeutic index and absolute antitumor efficacy of PL-MLP were superior to that of free MMC in the three tumor models tested. In addition, PL-MLP was significantly more active than a formulation of doxorubicin in pegylated liposomes (DOXIL) in the M109R tumor model, a mouse tumor cell line with a multidrug-resistant phenotype. Conclusions: Delivery of MLP in pegylated liposomes is a potential approach for effective treatment of multidrug-resistant tumors while significantly buffering the toxicity of MMC.