The aim of this study was to develop and characterize 5-Fluorouracil (5FU) containing targeted liposomes in order to enhance the efficacy and safety of the drug. Folic acid (FA) was used as a targeting ligand. The in vitro cytotoxicity of formulation against HT-29, Caco-2, CT26, HeLa and MCF-7 cell lines was evaluated using MTT assay. Mechanism of cell death induced by targeted liposomes was further investigated via the production of reactive oxygen species (ROS), change in mitochondrial membrane potential (ΔΨ_m), release of cytochrome c and activity of caspase 3/7. The in vivo tumor inhibition study was also performed after administration of drug and targeted 5FU liposome. The encapsulation efficiency (EE%) of the optimized formulation was 39.71%. Particle size of liposomes was around 174 nm and the nanoparticles were found to be spherical in shape. Differential Scanning Calorimetry (DSC) results indicated that the drug remained in an amorphous state in liposomes. According to the MTT results, targeted liposomes exhibited higher cytotoxicity than 5FU and liposomal 5FU. Targeted liposomes were found to trigger necrosis in HT-29 cells; while, in HeLa cells, targeted liposomes activated apoptotic pathway by collapse of ΔΨ_m, increased activity of cytochrome c as well as caspases activity. in vivo results showed that targeted liposomes reduced tumor volume significantly in comparison with 5FU (169.00 mm³ tumor volume vs 326.40 mm³). From these findings, it can be concluded that folic acid targeted liposomes may provide a new platform for selective delivery of drugs to cancer cells.