Hydrocortisone cream intended for atopic eczema often produces unwanted side effects after long-term use. These side effects are essentially due to repeated percutaneous administration of the medication for skin dermatitis, as atopic eczema is a relapsing disorder. Hence, there is a need to develop a new hydrocortisone formulation that will deliver the drug more effectively and require a reduced dosing frequency; therefore, the side effects could be minimized. In this study, a hydroxypropyl methylcellulose (HPMC) lyogel system based on 80% organic and 20% aqueous solvents containing 1% hydrocortisone was formulated. The hydrocortisone lyogel physicochemical characteristics, rheological properties, stability profile, and in vitro Franz cell drug release properties, as well as the in vivo therapeutic efficacies and dermal irritancy in Balb/c mice were investigated. The HPMC lyogel appeared clear and soft and was easy to rub on the skin. The lyogel also showed a higher drug release profile compared with commercial hydrocortisone cream. Similar to the cream, HPMC lyogels exhibited pseudoplastic behavior. From the mouse model, the hydrocortisone lyogel showed higher inflammatory suppressive effects than the cream. However, it did not reduce the transepidermal water loss as effectively as the control did. The dermal irritancy testing revealed that the hydrocortisone lyogel caused minimal irritation. In conclusion, HPMC lyogel is a promising vehicle to deliver hydrocortisone topically, as it showed a higher drug release in vitro as well as enhanced therapeutic efficacy in resolving eczematous inflammatory reaction compared with commercial cream.