Isoniazid (INH) is a first-line therapy for bone tuberculosis (TB), but its clinic benefits are limited by severe side-effects after long-time administration. While nano-drug delivery systems present as promising strategies for INH delivery, the therapeutic efficacies are usually suboptimal due to ineffective drug accumulation at diseased sites. Local delivery system can achieve high drug concentration at focus sites with minimal systemic exposure, and herein we aimed to employ this strategy to develop a novel liposome-in-hydrogel system for localized treatment of bone TB. To achieve sustainable drug release, a derivative of INH called DINH was loaded because of its hydrophobicity, as well as its better activity and higher biosafety than INH. The hybrid system was demonstrated for thermo-responsive and self-healing properties via phase transition test and rheological studies, which were particularly useful for intra-articular administration. In vivo microdialysis studies revealed that the system can rapidly release drug into synovial fluid to reach effective inhibitory concentrations after localized injection, followed by a steady-state drug release. The optical image studies were performed to study its long-term behavior in vivo, which suggested a sustained drug release profile for several days. This work provides a promising drug delivery system for bone TB therapy.