To develop a novel non-viral gene transfer system, liposome was modified with cetylated polyethylenimine (PEI). This polycation liposome (PCL) showed remarkable transfection efficiency to COS-1 cells in vitro, in comparison with conventional cationic liposome preparations. Cytotoxicity against COS-1 cells and hemolytic activity of PCL or PCL-DNA complex were quite low in comparison with conventional cationic liposomes. Most conventional cationic liposomes require phosphatidylethanolamine or cholesterol as a component, though PCL did not. Egg yolk phosphatidylcholine- and dipalmitoylphosphatidylcholine-based PCL were as effective as dioleoylphosphatidylethanolamine-based PCL for gene transfer. Furthermore, the transfection efficacy of PCL was enhanced, instead of being diminished, in the presence of serum. Effective gene transfer was observed in all eight malignant and two normal line cells tested as well as in COS-1 cells. The effect of the molecular weight of PEI on PCL-mediated gene transfer was examined, and observed that PEIs with a molecular weight (Mr. Wt.) of 600 and 1800 Da were quite effective but PEI of 25,000 was far less effective. Effectiveness of gene transfer by using PCL was also observed in vivo: GFP and Luciferase genes were effectively expressed in mouse. We also discussed the mechanism of gene transfer by PCL. Taken together, PCL represents a new system useful for transfection and gene therapy.