Photodynamic therapy (PDT) is a photochemistry-based modality in which a chemical (photosensitizer) is energized by light to produce cytotoxic molecular species. The current state of the art limits PDT to small isolated lesions. To make the modality more broadly applicable, new targeting strategies with high payloads of the photosensitizer are needed and several approaches are being evaluated. Nanoliposomes have attracted interest as efficient, biocompatible and biodegradable carriers of photosensitizers that broaden the applications of PDT through their multi-compartmental architecture and their tunable physicochemical characteristics. This chapter provides an overview of the theranostic aspects of liposomal constructs and their role in future advancements of PDT. It also elaborates on the photochemistry, physical properties and release mechanisms of photosensitizers entrapped within optimized liposomes that mediate effective PDT treatments.