Overexpression of P-glycoprotein (P-gp) is a key factor contributing to the development of multidrug resistance (MDR) in cancer cells. The objective of the study is to investigate whether a P-gp substrate, paclitaxel, delivered to MDR tumor cells in poly(D,L-lactide-co-glycolide) (PLGA) nanoparticles is susceptible to P-gp – mediated drug efflux. Paclitaxel-loaded nanoparticles were formulated by emulsion-solvent evaporation technique. Nanoparticles had a mean hydrodynamic diameter of about 195 nm, and demonstrated sustained release of paclitaxel. In vitro cell culture studies indicated that paclitaxel nanoparticles result in sustained, dose-dependent and significant cytotoxicity in drug-sensitive MCF-7 tumor cells but not in drug-resistant NCI-ADR/RES cells. Resistance to nanoparticle-encapsulated paclitaxel was reversed by verapamil, a P-gp inhibitor. Further, sustained inhibition of P-gp was necessary for sustaining the cytotoxicity of nanoparticle-encapsulated paclitaxel in drug-resistant cells. Inhibition of P-gp by verapamil did not significantly affect the uptake or retention of nanoparticles in drug-resistant cells. In conclusion, our studies suggest that P-gp substrates, such as paclitaxel, delivered to MDR cells by PLGA nanoparticles, are susceptible to efflux by P-gp. Inhibition of P-gp restores sensitivity to paclitaxel; however, sustained inhibition of P-gp is required for sustained therapeutic efficacy of nanoparticle-encapsulated drug.