The use of conventional vaginal formulations of miconazole nitrate (MN) in the treatment of deep-seated VVC (vulvovaginal candidiasis) is limited by poor penetration capacity and low solubility of MN, short residence time and irritation at the application site. Surface-modified mucoadhesive microgels were developed to minimize local irritation, enhance penetration capacity and solubility and prolong localized vaginal delivery of MN for effective treatment of deep-seated VVC. Solid lipid microparticles (SLMs) were prepared from matrices consisting of hydrogenated palm oil (Softisan® 154, SF) and super-refined sunseed oil (SO) with or without polyethylene glycol (PEG)-4000, characterized for physicochemical performance and used to prepare mucoadhesive microgels (MMs) encapsulating MN, employing Polycarbophil as bioadhesive polymer. The MMs were evaluated for physicochemical performance and in vitro drug release in simulated vaginal fluid (pH = 4.2), whereas mucoadhesive, rheological and stability tests, anticandidal efficacy in immunosuppressed estrogen-dependent female rats and vaginal tolerance test in rabbits were performed with optimized formulation. The amorphicity of 1:9 phytolipid blend (SO:SF) was increased in the presence of PEG-4000. The physicochemical properties of the SLMs and MMs indicated their suitability for vaginal drug delivery. Overall, MN-loaded PEGylated MMs exhibited significantly (p < 0.05) more prolonged drug release than non-PEGylated MMs. Additionally, optimized PEGylated MMs was stable at 40 ± 2 °C over a period of 6 months, viscoelastic, mucoadhesive, non-sensitizing, histopathologically safe and gave remarkably (p < 0.05) higher reduction in Candida albicans load (86.06%) than Daktarin® (75.0%) and MN-loaded polymeric-hydrogel (47.74%) in treated rats in 12 days. Thus, PEGylated MMs is promising for effective and convenient treatment of VVC.