We analyze peculiarities of phase transitions in small systems. We focus on the formation of a tiny liquid drop in a small N, V, T system, and develop an "extended modified liquid drop" model, which incorporates the effect of the fluctuations relevant for small systems. We compare the predictions for the p-v isotherms and the density profiles with the results of Monte-Carlo simulations of a Lennard-Jones system, and Density Functional Theory. (C) 2003 American Institute of Physics.