In April 2002, Section 304 of the Homeland Security Act of 2002 was amended and sets forth liability protection for participants in the national smallpox vaccination program. This section has been controversial since its enactment because liability protection could have been structured in a variety of ways. This paper describes the main approaches to vaccine liability, followed by an analysis of the liability protection provided under Section 304. The four main approaches to vaccine liability include: 1) the government can substitute itself as defendant and accept liability on behalf of the participants in the vaccination program; 2) the government can decide that no one needs to be held liable and establish a no-fault compensation program; 3) the government can indemnify vaccine manufacturers and distributors, providers, and other participants after they have been sued and a judgment issued against them; or 4) the government can alter the normal rules of litigation and/or compensation. Each of these methods has its proponents and critics, each will affect various stakeholders differently, and each alleviates different concerns. Under Section 304, participants are referred to as “covered persons” and deemed Federal employees of the U.S. Public Health Service (PHS) for liability purposes. Under the Public Health Services Act, lawsuits against PHS employees acting within the scope of their office or employment are not allowed. Instead, the Federal Government substitutes itself as defendant, accepting liability on behalf of the participants through the Federal Tort Claims Act (FTCA) of 1946. The article discusses in detail which vaccines and treatments are covered under Section 304, which individuals and institutions are covered under Section 304, what groups of individuals can be vaccinated under the Act, and other aspects of Section 304. The paper concludes with a discussion of several key principles related to liability that policymakers should consider when vaccines are used to defend against bioterrorism. These principles include: liability cannot be separated from compensation; ongoing communication with the various stakeholders is critical; the extent of liability protection and compensation should be clear prior to the desired implementation date; liability laws that protect participants in vaccination programs should have flexibility to address new circumstances that may arise; and post-attack liability and compensation should be established before an attack. Footnotes and 2 appendices