Abstract A novel injectable in situ gelling thermosensitive chitosan–β-glycerophosphate (C–GP) formulation has been recently proposed for tissue repair and drug delivery. The system can sustain the release of macromolecules over a period of several hours to a few days. However, with low-molecular-weight hydrophilic compounds, the release is generally completed within 24 h. In this study, liposomes were added to the C–GP solution and their effect on the viscoelastic properties of the system and release kinetics of encapsulated carboxyfluorescein was investigated. The gelation rate and gel strength were slightly increased by the presence of the liposomes. The in vitro release profiles demonstrated controlled delivery over at least 2 weeks. The release rate strongly depended on the liposome size and composition (i.e. addition of cholesterol), and on the presence of phospholipase in the release medium. The kinetics was not substantially modified when using liposomes prepared with a negatively-charged lipid or a lipid having a high phase transition temperature. These results indicate that the liposome–C–GP system rapidly gels at body temperature, and can sustain the delivery of low-molecular-weight hydrophilic compounds. A mathematical model was proposed to characterize the release kinetics.