Secretory leukocyte protease inhibitor (SLPI) is an endogenous serine protease inhibitor that protects the lungs from excessive tissue damage caused by leukocyte proteases released during inflammation. Recombinant SLPI (rSLPI) has shown potential as a treatment for inflammatory lung conditions. To date, its clinical application has been limited by rapid enzymatic cleavage by cathepsins and rapid clearance from the lungs after inhalation. In this study, rSLPI was encapsulated in 1,2-Dioleoylsn-Glycero-3-[Phospho-L-Serine] : Cholesterol (DOPS : Chol) liposomes for inhalation. Incubation of rSLPI with cathepsin L leads to complete loss of activity while encapsulation of rSLPI in DOPS : Chol liposomes retained 92.6% of its activity after challenge with cathepsin L. rSLPI-loaded liposomes were aerosolized efficiently using a standard nebulizer with a minimal loss of activity and stability. This formulation was biocompatible and encapsulation did not appear to diminish access to intracellular sites of action in in vitro cell culture studies. Liposome encapsulation of rSLPI therefore improves stability and potentially reduces the level and frequency of dosing required for therapeutic effect after inhalation.