A stable, food-compatible liposome is prepared by dissolving a lipophilic material in a phospholipid followed by the addition of water or an aqueous solution and mixing by sonicating to produce a liposome having the lipophilic material encapsulated in the lipid bilayer. The preferred lipophilic materials include any readily oxidizable lipid and in particular the omega-3 fatty acid containing fish oils. Other lipophilic materials which can be encapsulated in the lipidic bilayer include flavorants, acidulants, preservatives and antioxidants. The resulting liposomes provide a stabilizing vehicle for the lipophilic materials to reduce the occurrence of oxidation and rancidity. Liposomes prepared according to the disclosed method exhibit none of the unpleasant odor and flavor characteristics normally associated with oxidized or rancid oils. The liposomes provide an extended shelf life of the unstable oils and can be added directly to the food product as a dispersion during the manufacturing stage or dried to a free flowing powder for later use.