Abstract Rheumatoid arthritis (RA) is among the major human autoimmune diseases, and it affects over 1 percent of the population. Although many anti-arthritis drugs are available for RA therapy, their long-term use may lead to severe adverse effects. This, combined with high cost of many newer drugs, poses a hurdle for the effective control of RA as well as patient compliance with therapeutic regimens. Therefore, novel treatment modalities are required to overcome these limitations. In this context, we have developed a nanotechnology-based drug delivery system for targeted therapy of arthritic inflammation. Liposomal entrapment of drugs increases their shelf-life in vivo, whereas the display of a joint-homing peptide ligand on liposomal surface aids in guiding them to the site of inflammation. One such peptide (denoted as ART-1) was previously identified by us by phage peptide-display library screening of arthritic Lewis rats. When administered subcutaneously or intravenously, fluorescence-labeled ART-1 shows preferential homing to arthritic joints compared to normal (control) joints. We exploited this drug delivery system for the treatment of experimental arthritis with dexamethasone (Dex) using the rat adjuvant arthritis (AA) model. At the time of onset of AA, rats were treated with liposomal Dex, unpackaged (free) Dex, or the vehicle on alternate days. All rats were observed and graded regularly for arthritis severity. Sera obtained at the terminal step were tested for a panel of enzymes indicating tissue/organ toxicity. Liposomal Dex showed improved therapeutic profile (efficacy/toxicity ratio) over that of free Dex. We propose that this peptide ligand-targeted drug delivery approach can be adapted for effective control of human RA. "Supported by grants from NIH (R01 AT004321), Veterans Affairs (5 I01 BX002424) and Silo Pharma"