Liposomes have gained a lot of interest for drug delivery applications, and some of these preparations have been commercialized. These are formulated with biocompatible components and can be used for delivering a wide range of payloads differing in aqueous solubility and molecular weight. Liposome-based delivery approaches are limited mainly by two factors: (a) poor dispersion stability, and (b) pre-mature leakage of payloads. In this review, we have discussed the stabilization of liposomal vesicles by their entrapment in hydrogels. Studies reveal that such hydrogels can maintain the structural integrity of liposomes. Release of liposomes from the hydrogel network can be modulated through careful screening of matrix former and degree of its cross-linking. Accordingly, we have reviewed the approaches of stabilizing liposomal vesicles through entrapment in hydrogels. Application of liposome-embedded hydrogels has been reviewed in context of localized drug delivery. Our discussion is focussed on the delivery of bioactives to the skin. Such an approach appears alluring from the standpoint of minimizing the undesirable distribution of payload(s) the systemic circulation and off-target sites.