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Light triggered drug delivery systems offer attractive possibilities for sophisticated therapy, providing both temporal and spatial control of drug release. We have developed light triggered liposomes with clinically approved indocyanine green (ICG) as the light sensitizing compound. Amphiphilic ICG can be localized in different compartments of the liposomes, but the effect of its presence, on both triggered release and long term stability, has not been studied. In this work, we report that ICG localization has a significant effect on the properties of the liposomes. Polyethylene glycol (PEG) coating of the liposomes leads to binding and stabilization of the ICG molecules on the surface of the lipid bilayer. This formulation showed both good storage stability in buffer solution (at +4–37 °C) and adequate stability in serum and vitreous (at +37 °C). The combination of ICG within the lipid bilayer and PEG coating lead to poor stability at elevated temperatures of +22 °C and + 37 °C. The mechanisms of the increased instability due to ICG insertion in the lipid bilayer was elucidated with molecular dynamics simulations. Significant PEG insertion into the bilayer was induced in the presence of ICG in the lipid bilayer. Finally, feasibility of freeze-drying as a long term storage method for the ICG liposomes was demonstrated. Overall, this is the first detailed study on the interactions of lipid bilayer, light sensitizer (ICG) and PEG coating on the liposome stability. The localization of the light triggering agent significantly alters the structure of the liposomes and it is important to consider these aspects in triggered drug delivery system design.