The Hedgehog (Hh) pathway inhibitors have shown great promise in cancer therapeutics. SANT75, a novel compound we previously designed to specially inhibit the Smoothened (SMO) protein in the Hh pathway, has greater inhibitory potency than many of commonly used Hh inhibitors. However, preclinical studies of SANT75 revealed water insolubility and acute toxicity. To overcome these limitations, we developed a liposomal formulation of SANT75 and investigated its antitumor efficacy in vitro and in vivo. We encapsulated SANT75 into PEGylated liposome and the mean particle size distribution and zeta-potential (ZP) of liposomes were optimized. Using the Shh-light2 cell and Gli-GFP or Flk-GFP transgenic reporter zebrafish, we confirmed that liposome-encapsulated SANT75 inhibited Hh activity with similar potency as the original SANT75. SANT75 encapsulated into liposome exerted strong tumor growth-inhibiting effects in vitro and in vivo. In addition, the liposomal SANT75 therapy efficiently improved the survival time of tumor-bearing mice without obvious systemic toxicity. The pathological morphology and immunohistochemistry staining revealed that liposomal SANT75 induced tumor cell apoptosis, inhibited tumor angiogenesis as assessed by CD31 and down-regulated the expression of Hh target protein Gli-1 in tumor tissues. Our findings suggest that liposomal formulated SANT75 has improved solubility and bioavailability and should be further developed as a drug candidate for treating tumors with abnormally high Hh activity.