The prevailing chronic treatment for osteoarthritis--oral administration of NSAIDs--is accompanied by severe adverse effects and risks of gastrointestinal (GI) toxicity. The working hypothesis of this study was that increased NSAID-efficacy and alleviation of adverse effects can be achieved by local administration of a new slow-release NSAID-carrier formulation. Diclofenac was the test NSAID and collagomers--novel vesicular-shaped microparticles based on collagen-lipid conjugates--were the carriers. Collagomers were stable in simulated synovial fluid and showed: high-efficiency drug encapsulation (85%); slow drug release (tau((1/2))=11 days); high affinity to target cells (Kd=2.6 nM collagen). In vitro activity of Diclofenac released from the carriers was similar to fresh drug solutions. Diclofenac-collagomer therapeutic effects were studied in osteoarthritis-induced rats, using live-animal MRI. A single intra-articular injection of the Diclofenac-collagomer formulation reduced inflammation over 3 weeks significantly vs. untreated animals (p<0.001), and vs. the conventional treatment which is free drug PerOs (p<0.03). Bypassing the GI, the novel treatment circumvents adverse effects of the conventional approach. In conclusion, the collagomers performed as functional Diclofenac-depots for local treatment of osteoarthritis, avoiding GI adverse effects. The in vivo results merit further investigations of this novel NSAID formulation as a valid option to the conventional treatment.