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We develop a method for pH-dependent fusion between liposomes and cellular membranes using pHLIP® (pH Low Insertion Peptide), which inserts into lipid bilayer of membrane only at low pH. Previously we establish the molecular mechanism of peptide action and show that pHLIP can target acidic diseased tissue. Here we investigate how coating of PEGylated liposomes with pHLIP might affect liposomal uptake by cells. The presence of pHLIP on the surface of PEGylated-liposomes enhanced membrane fusion and lipid exchange in a pH dependent fashion, leading to increase of cellular uptake and payload release, and inhibition of cell proliferation by liposomes containing ceramide. A novel type of pH-sensitive, “fusogenic” pHLIP-liposomes was developed, which could be used to selectively deliver various diagnostic and therapeutic agents to acidic diseased cells.