A system for packaging disposable endoscope sheaths so that they do not become contaminated prior to use during shipment, storage and installation on an endoscope. The packaging system also prevents the spread of contamination after use while the sheath is being removed from the endoscope and then discarded. The sheath is shipped in an elongated, flexible bag having a length substantially equal to the length of the insertion tube of the endoscope and a diameter substantially larger than the diameter of the insertion tube. The sheath and bag may be shipped in a sterile tray having a spiral recess containing the sheath, bag and funnel-like container or bag holding the tubing of the air, water, and suction channels. Installation of the sheath on the endoscope is accomplished by inflating the sheath while it is in the bag so that the sheath expands until it contacts the wall of the bag. The insertion tube is then inserted into the sheath, the sheath is deflated and the insertion tube and surrounding sheath are removed from the bag for use. After use, the insertion tube and surrounding sheath are inserted into the bag, and the sheath is inflated until it is restrained from further expansion by the wall of the bag. The insertion tube is then removed from the sheath, the sheath is deflated, and the sheath and surrounding bag are discarded as a unit, the funnel-like proximal segment being used to dispose of the contaminated tubes (air, water, suction, etc.).