Liposomes are a versatile class of nanoparticles with tunable properties, and multiple liposomal drug formulations have been clinically approved for cancer treatment. In recent years, an extensive library of gadolinium (Gd)-containing liposomal MRI contrast agents has been developed for molecular and cellular imaging of disease-specific markers and for image-guided drug delivery. This review discusses the advances in the development and novel applications of paramagnetic liposomes in molecular and cellular imaging, and in image-guided drug delivery. A high targeting specificity has been achieved in vitro using ligand-conjugated paramagnetic liposomes. On targeting of internalizing cell receptors, the effective longitudinal relaxivity r1 of paramagnetic liposomes is modulated by compartmentalization effects. This provides unique opportunities to monitor the biological fate of liposomes. In vivo contrast-enhanced MRI studies with nontargeted liposomes have shown the extravasation of liposomes in diseases associated with endothelial dysfunction, such as tumors and myocardial infarction. The in vivo use of targeted paramagnetic liposomes has facilitated the specific imaging of pathophysiological processes, such as angiogenesis and inflammation. Paramagnetic liposomes loaded with drugs have been utilized for therapeutic interventions. MR image-guided drug delivery using such liposomes allows the visualization and quantification of local drug delivery. Copyright (c) 2013 John Wiley & Sons, Ltd.