Taxol is a promising antitumor agent with poor water solubility. Intravenous administration of a current taxol formulation in a non-aqueous vehicle containing Cremophor EL may cause allergic reactions and precipitation upon aqueous dilution. In this study a novel approach to formulate taxol in aqueous medium for i.v. delivery is described. The drug is solubilized in bile salt (BS)/phospholipid (PC) mixed micelles. The solubilization potential of the mixed micelles increased as the total lipid concentration and the molar ratio of PC/BS increased. Precipitation of the drug upon dilution was avoided by the spontaneous formation of drug-loaded liposomes from mixed micelles. The formulation can be stored in a freeze-dried form as mixed micelles to achieve optimum stability, and liposomes can be prepared by simple dilution just before administration. As judged by a panel of cultured cell lines, the cytotoxic activity of taxol was retained when formulated as a mixed-micellar solution. Further, for the same solubilization potential, the mixed-micellar vehicle appeared to be less toxic than the standard nonaqueous vehicle of taxol containing Cremorphor EL.