The purpose of this study is to develop a new formulation for prostaglandin E₁ (PGE₁)-loaded lipid emulsion (Lipo-PGE₁) with improved stability and reduced biodegradation. High-pressure homogenization was used to prepare the Lipo-PGE₁, and high-performance liquid chromatography and accelerated test were used to evaluate its physicochemical stability. A tissue homogenate incubation test was firstly established and validated to assess its biodegradation. The factors influencing the stability of Lipo-PGE₁, including oil phase, emulsifier, pH value, and drug concentration were systematically investigated. The optimized formulation consisting of poloxamer188 1.5% (w/v), egg lecithin 0.5% (w/v), soybean oil 10.0% (w/v), oleic acid 0.24% (w/v), and glycerol 2.2% (w/v), with the pH value at 4.0, was defined and characterized. When compared with the currently available commercial product of Lipo-PGE₁, the degradation percentage of this optimized Lipo-PGE₁ reduced by 47.1% after sterilization, the drug remaining percentage increased by 13.9% after storage at 4°C over 6 months. Also, a significant reduction in biodegradation of the optimized Lipo-PGE₁ in comparison with the commercial Lipo-PGE₁ was observed by a tissue homogenate incubation test. Overall, we provided a novel formulation for Lipo-PGE₁ with a better physicochemical stability and a less biodegradation than the currently available commercial product of Lipo-PGE₁, indicating its potential superiority in clinical application.