Liposomes are man-made organelles composed of bimolecular lipid layers enclosing aqueous compartments. Dexamethasone Sodium Phosphate (DSP) was encapsulated in MLV liposomes and served as the test solution. DSP in solution served as control. Both were labeled with Tc-99m. The rats were divided into three groups: topical application group, intramucosal injection and control group. Oral mucosal ulcers were produced by silver nitrate and was monofocal. Rats were killed at three and 24 h, respectively, after application. Ulcerated mucosa, intact adjacent mucosa and distant mucosa were excised. Biodistribution was determined by radiotracer technique in the three mucosal parts as well as in the blood, liver, spleen and brain. Liposomes increase local and decrease systemic drug concentration. Another finding was that liposomes localize the drug in the ulcerated area. In conclusion, liposomes may be useful in the treatment of oral ulcers.