Some fluorescent dyes are largely quenched when incorporated into liposomes at high concentrations, but regain their fluorescence when released and diluted in solution. These dye- liposome systems have wide use in membrane and cell studies, but a plausible mechanism of the concentration quenching has not been given. The concentration quenching of various dyes encapsulated in phosphatidylcholine liposomes was studied. For 6- carboxyfluorescein, which is the most commonly used dye, no evidence for collisional quenching could be found. However, all the quenching observed at high dye concentration could be accounted for by nonfluorescent dimer formation and energy transfer to the dimer. Energy transfer could be demonstrated by polarization measurements, and dimerization could be quantitated by absorption spectra of the liposomes. A fraction of the dye was associated with the lipid membrane and not easily quenched either by energy transfer or by KI, a collisional quencher. Studies on the fluorescence decay kinetics of 4- methylumbelliferone have provided direct evidence for the postulated occurrence of phototautomerism where a neutral ground state molecule becomes zwitterionic in the first excited state. Complex decay curves indicate the presence of transient intermediates whose spectra will be studied by the technique of decay associated spectroscopy, using our decay time fluorometer based on a tunable dye laser synchronously pumped by the doubled output of a Nd:YAG laser.