Liposomes (70-100 nm) of 1-palmitoyl-2-oleoylphosphatidylcholine, cholesterol, and poly(ethylene glycol) (PEG)-modified phosphatidylethanolamine (PEG-DSPE) were conjugated to Fab' fragments of a humanized recombinant MAb against the extracellular domain of HER2/neu to create sterically stabilized immunoliposomes (anti-HER2 SL) as a drug carrier targeting HER2-overexpressing cancers. Conjugation employed maleimide-terminated membrane-anchored spacers of two kinds: a short spacer, providing attachment of Fab' close to the liposome bilayer, or a long spacer, with Fab' attachment at the distal terminus of the PEG chain. Confocal microscopy and spectrofluorometry of HER2-overexpressing breast cancer cells incubated with fluorescently labeled anti-HER2 SL prepared with either spacer showed binding of liposomes (8000-23000 vesicles/cell) followed by endocytosis (rate constant ke = 0.012-0.033 min-1) via the coated-pit pathway, evidenced by intracellular acidification and colocalization with transferrin. Uptake of anti-HER2 immunoliposomes by breast cancer cells with low HER2 expression, or after preincubation of cells with free anti-HER2 Fab', was less than 0.2% and 4.3%, respectively, of the uptake by HER2-overexpressing cells. Increasing PEG-DSPE content (up to 5.7 mol %) in anti-HER2-SL prepared with the short spacer decreased liposome-cell binding affinity 60-100-fold, while ke decreased only 2-fold; however, when Fab' fragments were conjugated via a PEG spacer, both binding affinity and ke were unaffected by PEG-DSPE content. Cell binding and internalization of anti-HER2 immunoliposomes increased at higher surface density of conjugated Fab' fragments, reaching plateaus at approximately 40 Fab'/liposome for binding and approximately 10-15 Fab'/liposome for internalization. Uptake of anti-HER2 immunoliposomes correlated with the cell surface density of HER2 and significantly (p < 0.005) correlated with the antiproliferative effect of the targeting antibody but not with the total level of cellular HER2 expression. The results obtained were used to optimize in vivo preclinical studies of anti-HER2 SL loaded with antineoplastic drugs.