In this paper we describe the fabrication and characterization of new liposome encapsulated quantum dot-fluorescence resonance energy transfer (FRET)-based probes for monitoring the enzymatic activity of phospholipase A2. To fabricate the probes, luminescent CdSe/ZnS quantum dots capped with trioctylphosphine oxide (TOPO) ligands were incorporated into the lipid bilayer of unilamellar liposomes with an average diameter of approximately 100 nm. Incorporating TOPO capped quantum dots in liposomes enabled their use in aqueous solution while maintaining their hydrophobicity and excellent photophysical properties. The phospholipid bilayer was labeled with the fluorophore NBD C6-HPC (2-(6-(7-nitrobenz-2-oxa-1,3-diazol-4-yl)amino)hexanoyl-1-hexa decanoyl-sn-glycero-3-phosphocholine). The luminescent quantum dots acted as FRET donors and the NBD dye molecules acted as FRET acceptors. The probe response was based on FRET interactions between the quantum dots and the NBD dye molecules. The NBD dye molecules were cleaved and released to the solution in the presence of the enzyme phospholipase A2. This led to an increase of the luminescence of the quantum dots and to a corresponding decrease in the fluorescence of the NBD molecules, because of a decrease in FRET efficiency between the quantum dots and the NBD dye molecules. Because the quantum dots were not attached covalently to the phospholipids, they did not hinder the enzyme activity as a result of steric effects. The probes were able to detect amounts of phospholipase A2 as low as 0.0075 U mL(-1) and to monitor enzyme activity in real time. The probes were also used to screen phospholipase A2 inhibitors. For example, we found that the inhibition efficiency of MJ33 (1-hexadecyl-3-(trifluoroethyl)-sn-glycero-2-phosphomethanol) was higher than that of OBAA (3-(4-octadecyl)benzoylacrylic acid).