Low dose Methotrexate (MTX) therapy is considered a gold standard for Rheumatoid Arthritis (RA). Transdermal drug delivery is hypothesized as an alternative to conventional therapies to alleviate its adverse effects. In our study, MTX was entrapped in deformable liposomes and loaded in a hydroxyethyl cellulose gel. This system was evaluated by the Box Behnken statistical design for optimization. The effect of formulation variables on particle size, entrapment and ex vivo skin permeation was studied. The MTX nanogel was evaluated for its dermal toxicity (acute and repeat dose safety), in vivo biodistribution (using ¹²⁵I radio-labelled MTX) and therapeutic efficacy (collagen induced arthritis [CIA] model). The optimized formulation demonstrated appreciable nanosize (110 ± 20 nm), drug entrapment (42 ± 1.9%) and high ex vivo transdermal flux (17.37 ± 1.5 μg/cm2/hr). In the dermal toxicity studies, nanogel formulation did not show any signs of irritation or toxicity, whereas in the biodistribution study, the MTX nanogel formulation depicted sustained systemic delivery up to 48 h with low accumulation in its organs of toxicity such as the liver, kidneys and gut. In the CIA model, the MTX nanogel significantly ameliorated hind paw swelling, reduced arthritic score, joint damage (histological, radiological examination) and attenuated the rise in serum cytokines such as TNF-ɑ and IL-6. In conclusion, the optimized MTX nanogel formulation displayed skin biocompatibility, sustained systemic delivery, safety as well as therapeutic efficacy.