Inadequate drug delivery, due to problems associated with achieving constant therapeutic blood levels, has hampered the use of anticancer agents of the camptothecin (CPT) class. The objective of the current studies was to develop a depot delivery system for the water-soluble analog of CPT, topotecan (TPT). In this study, a 2-phase drug depot consisting of TPT-loaded liposomes entrapped in a poly(ethylene glycol) hydrogel was designed. Physically entrapped unaltered TPT displayed a rapid release rate from the hydrogel. Controlled release was demonstrated in vitro and in vivo from the 2-phase system with constant blood levels being achieved for several days in rats. Cytotoxicity and antitumor activity were also evaluated in rats inoculated with syngeneic MAT B III breast cancer cells. Rats treated with the liposome-loaded hydrogel displayed significantly longer tumor growth suppression and did not exhibit body weight loss compared to those treated with other delivery modes. These experiments constitute a proof-of-principle of the 2-phase depot concept and its potential value for enhancing safety and efficacy in chemotherapy.