Cystic fibrosis (CF) is a common and lethal genetic disorder with a carrier frequency of 1 in 29 Caucasians. Chronic respiratory infections with Pseudomonas aeruginosa are the leading cause of morbidity and mortality in individuals with CF. Aminoglycoside antibiotics, including gentamicin, are highly effective against P. aeruginosa, but severe toxicity limits their use. One potential strategy for avoiding this problem is to encapsulate aminoglycosides in liposomes. In this study, we compared the bactericidal capacity of liposome-encapsulated gentamicin with that of free antibiotic against clinical isolates of P. aeruginosa. Liposome size, encapsulation efficiency and minimal inhibitory concentrations (MICs) of the free and liposomal gentamicin against gentamicin-sensitive and -resistant strains of P. aeruginosa were determined. In vitro time–kill studies were performed using free and liposomal gentamicin at 1, 2 or 4 times the MICs. The average liposomal size was 426.25 ± 13.56 nm, with a gentamicin encapsulation efficiency of 4.51 ± 0.54%. The MICs for liposomal gentamicin were significantly lower than those of corresponding free gentamicin. In addition, the time–kill values for liposomal gentamicin were either equivalent to or better than those of the free antibiotic. In conclusion, our liposomal gentamicin formulation is a more potent antipseudomonal drug with an improved killing time and prolonged antimicrobial activity.