A recently reported approach to nanocrystallise encapsulated ciprofloxacin within liposomes has generated increased interest in the solid-state properties of drug nanocrystals within liposomal confinement. To explore the potential application of nanocrystallised drug liposomes in oral delivery, a liposomal ciprofloxacin formulation was used as a model system. An in vitro digestion model coupled to small angle X-ray scattering was used to analyse the solid-state properties of the drug nanocrystals during digestion of the liposomal ciprofloxacin nanocrystal formulations. Results showed a complete polymorphic transformation of the ciprofloxacin hydrate nanocrystals to a new salt form at a threshold sodium taurodeoxycholate to ciprofloxacin molar ratio of 0.6. The in vitro drug release from the nanocrystallised drug containing liposomes showed controlled drug release behaviour under non-digestive conditions, while a 3.5-fold increase in the drug release was seen when they were exposed to the simulated digestive environment. In conclusion, the solid state of the drug inside the liposomes is important in dictating the drug release behaviour from the liposomes. The identification of the solid state transformation during digestion in real time and the bile salt-induced polymorphic transformation of ciprofloxacin from nanocrystallised ciprofloxacin liposome are important to understand how the drug is released in vivo, as well as for future formulation design.