Introduction Ziprasidone (ZP) is a novel atypical antipsychotic agent effective in the treatment of positive and negative symptoms of schizophrenia with low chances for extrapyramidal side effects (EPs) and cognitive deficits. ZP possesses poor oral bioavailability (~50%), short biological half-life (~2.5 h) and due to extensive first-pass metabolism, a repeated dose is administered which makes the therapy non-adherent, leading to patient non-compliance. Therefore, this is a first report of developing parenteral ZP loaded sustained release phospholipid based phase-transition system (ZP-LPS). Methods The ZP-LPS system was formulated by mixing of biocompatible materials including phospholipid E 80, medium chain triglyceride (MCT) and ethanol. Optimization was done by aqueous titration method using pseudo-ternary phase diagram and dynamic rheological measurements. In vivo depot formation was confirmed by gamma scintigraphy after subcutaneous injection. Biodegradation and biocompatibility studies were performed for its safety evaluation. Finally, the efficacy of the formulation was assessed by Morris water maze (MWM) test and dizocilpine (MK-801) was used to induce schizophrenia in Sprague-Dawley rats. Results Optimized ZP-LPS showed rapid gelation (2 min), highest change in viscosity (~48000 mPa.s) and sustained release of ZP over a period of 1 month. Gamma scintigraphy depicted that the low-viscosity ZP-LPS system undergo rapid in situ gelation. Biodegradation and biocompatibility studies revealed gradual degradation in size of depot over a period of 28 days without any inflammation at the injection site. In MWM test, escape latency, time spent and total distance in target quadrant were significantly improved (p < 0.001) in the ZP-LPS group in comparison to the MK-801 group when evaluated at day 0, day 7 and day 28. However, significant improvement (p < 0.001) was observed only at day 0 in ZP suspension group. Conclusion The overall result indicates that the novel ZP-LPS system is safe, biodegradable, and effective for the management of schizophrenia.