Collagen-induced arthritis (CIA) generated in rats or mice has long been a model system for the study of rheumatoid arthritis in humans. In particular, this system has been used to study the mechanisms and effects of anti-arthritic drugs in the treatment of the disease. Sodium aurothiomalate (ATM) is an agent often used to treat rheumatoid arthritis in humans; however, it possesses inherent toxicities which limits its usefulness. Liposome-encapsulated drugs are currently being developed to minimize the toxicities associated with a variety of potentially beneficial drugs. We have chosen to encapsulate ATM into small unilamellar vesicles (SUVs) to determine whether greater efficacy would be achieved in treating CIA with SUV ATM as compared to using the free drug. SUVs were prepared from hydrogenated egg phosphatidylcholine and cholesterol. These SUVs were very stable. Vesicles stored at 4 degrees C lost only 0.09% of encapsulated ATM (SUV ATM) after 14 days and were able to reduce collagen-induced arthritis in these mice. Animals treated by i.m. injections of SUV ATM exhibited a 50% reduction in symptoms. More importantly, histological examination of knee joints of the affected animals verified that SUV ATM treatment prevented cellular infiltration of lymphocytes into the synovia of the collagen-sensitized mice. Conditioned media from spleen cell cultures was assayed for the presence of inflammatory lymphokines that might be affected by SUV ATM to account for the success in suppressing collagen-induced arthritis.