The aim of this study was to formulate each of fluconazole and propolis in liposomal system and to evaluate their antifungal activities in solution or liposomal formulation, in both in vitro and in vivo (rabbits cornea) against Candida albicans. Each of fluconazole (2 mg/ml) and propolis (5%) were prepared under sterile condition, in solution form, as well as were entrapped in multilamellar liposomes, composed of egg yolk phosphatidylcholine and cholesterol (up to 50 mole% of cholesterol). The effect of cholesterol incorporation on the encapsulation efficiency of drug was most pronounced with liposomes prepared from 33% of cholesterol In vitro, the diameters of the growth inhibition zones, which indicate the antifungal activity of fluconazole and propolis in solution and liposomal formulation, were measured using cup diffusion method. They were compared with that of polyvinyl alcohol (solution) and liposomes alone as control groups. In vivo, the study was carried out in sixteen Newzland rabbits. Candida keratitis was induced by inoculating Candida albicans 15 µl into the central corneal stroma. One drop of the previous preparations were applied into the conjunctival sac every hour for 14 hours daily until complete healing of the Candida keratitis or appearance of sever complications (Resistant corneal ulcer or atrophia bulbi). The antifungal activity of all preparations were evaluated by observation of the rate of corneal healing using sterile fluorescein solution daily. The results revealed that, all control groups exhibited no antifungal activity either in vitro or in vivo. In vitro, fluconazole and propolis in solution or liposomal formulation exhibited antifungal activity which could be arranged in the following descending rank order : liposomal fluconazole > liposomal propolis > fluconazole in solution> propolis in solution. In vivo, there were a highly significant differences between each of fluconazole and propolis in liposomal formulation, in comparison with both drugs in solution form (P = 0.001 and 0.002 respectively). There were no significant differences between liposomal fluconazole and liposomal propolis (P = 0.45). There were no significant differences between fluconazole and propolis in solution (P = 0.46) .Accordingly, it could be concluded that liposomal encapsulation seems to offer a simple and potent means of enhancing and improving the antifungal activity of the drugs.