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This study reports structural characterization of liquid crystalline (LC) phase, formed through water driven transition in a nonionic microemulsion (ME). ME was formulated with α-tocopheryl polyethylene glycol succinate (TPGS) – Span 80 (3:1) as surfactant mixture and Captex 355 (a medium chain triglyceride) as oil phase. The role of surfactant mixture was elucidated by small angle neutron scattering (SANS) experiments. SANS analyses revealed that, at a specific ratio, TPGS micelles and Span 80 vesicles interacted to form ellipsoidal nanostructures. The ME transformed to LC phase during progressive water addition. Subsequent structural changes were investigated by polarized light microscopy, differential scanning calorimetry, texture profile and rheological analyses. Transition occurred with 19–24% water addition and it was accompanied with; (a) change of isotropic ME to birefringent LC phase, and (b) improvement in the rheological properties. Interestingly, the transition downshifted to 9.8% water level upon loading the oil phase with 20 mg/ml paclitaxel (PLX). LC structures remained stable at physiological temperature up to 72 h and offered controlled release of PLX under artificial sink conditions. We suggest that in situ development of LC phase can be explored to create long-residing intra-muscular depot formulations.