Water-based lubricants are abundant in nature; however, they perform poorly in mechanical systems. Based on research into synovial fluid lubrication a water-based liposomal lubricant was developed using a phospholipid (DSPC) and stearic acid (SA). Compared to pure water the liposomal DSPC lubricant improved wear and friction performance, although it underperforms a low viscosity oil such as hexadecane. The inclusion of SA encapsulated within the liposome further improves the performance to a level comparable to hexadecane. Improved performance is achieved due to the following factors: a) DSPC-SA lubricant forms a growing multi bilayer structure in the contact region thereby decreasing wear b) the electrostatic charge associated with the structure allows for retention of the film within the contact area thereby decreasing friction and wear c) liposomes allow for utilisation of insoluble additives within water-based lubricants. The optimal liposomal lubricant tested demonstrates a 63 % reduction of the coefficient of friction and a 99 % reduction in resulting wear compared to DI water alone, thereby providing an avenue for effective utilisation of water in mechanical systems.