Understanding the influence of ethanol on liposomes is important for insights into the physiological effects of ethanol on cell membranes and for transdermal drug delivery. In this work, different amounts of ethanol are added to liposome suspensions (1,2-dimyristoyl-sn-glycero-3-phosphocholine liposomes) of different initial sizes, and the size distributions are measured using dynamic light scattering. The average diameter reduces by 5-6% at a concentration of 20 vol % of ethanol, and the size distributions with and without ethanol are identical when scaled with the number-average diameter. The observed changes in diameter are significantly larger than the standard error of the measurements. Dilution of the liposome suspension containing 20 vol % ethanol with addition of water causes the liposomes to nearly regain their original size at that concentration; thus, the size change is reversible. The size measurements from dynamic light scattering are validated by cryo-transmission electron microscopy measurements, which show a similar reduction in the number-average diameter. P-31 NMR studies also show a reduction in size upon addition of ethanol. The volume fraction of liposomes in the suspension, obtained from viscosity measurements, decreases by 9% with ethanol addition. A reduction of 4% in the number-average diameter is obtained upon adding 20 vol % ethanol to a suspension of giant liposomes, with the size distributions obtained by optical microscopy. Addition of cholesterol in the lipid membrane reduces the extent of shrinkage. The results indicate that the size reduction is due to shrinkage of liposomes and not due to breakage or dissolution and that the shrinkage is independent of the membrane curvature. Analysis shows that the decrease in size cannot be ascribed to membrane undulations alone when the increase in area per lipid molecule due to ethanol is taken into account. Addition of ethanol during the preparation of liposomes results in a much larger reduction in the average liposome diameter (up to 20%).