The small particle liposome aerosol compounds and methods of treatment of the present invention involve lipid- or water soluble anti-cancer drugs incorporated into liposomes. The liposomes are administered in aqueous dispersions from a jet nebulizer to the respiratory tract of an individual. Various anti-cancer drugs may be used, including 20-S-Camptothecin, 9-Nitro-camptothecin, 9-Amino-camptothecin, 10, 11-methylenedioxy-camptothecin and taxol or its derivatives. Administration of these drugs by inhalation provides faster and more efficient absorption of the anticancer drug than does intramuscular administration or oral administration.