In vitro models of oral candidosis based on reconstituted epithelium have been successfully used for virulence studies. In the present study we examined the effects of two povidone iodine (PVP-I) formulations (conventional PVP-I ointment, PVP-I liposome hydrogel) on reconstituted human mucosa and on a model of oral candidosis. The morphological alterations of the reconstituted mucosa caused by infection with C. albicans and by treatment were analyzed with light and electron microscopy. Specific alterations of the epithelium (vacuoles, spongiosis, oedema, detachment of keratinocytes) and invasion of the mucosa by fungal cells were reduced by treatment with the liposomal preparation, but not by the conventional ointment. However, a single application of the liposomal hydrogel to the uninfected mucosa demonstrated some structural irritations in the deeper tissue layers which were not seen with the ointment. Light microscopical studies demonstrated multiple globular structures in all samples treated with the liposomal PVP-I preparation. At the ultrastructural level these globular structures were classified as liposomes. The great majority of liposomal particles filled with dark contrasted active substance could be observed in contact with the cell wall of C. albicans and within the fungal cells. Targeting to the fungal surface resulted in a strong amount of the active ingredient next to the pathogens but not to the host cells. In conclusion the liposomal PVP-I formulation appeared superior to the conventional ointment formulation because of both less toxicity and better therapeutical effects.