The purpose of present investigation was to nano-encapsulate atypical antipsychotic such as Olanzapine in polymeric nanoparticles in order to explore the possibility of minimizing drug associated extrapyramidal adverse effects. The polymeric nanoparticulate systems were prepared using FDA approved polymer, polycaprolactone, by simple technique of nanoprecipitation using factorial design by DoE approach. The significant factors selected for the optimization during formulation development process were polymer content and surfactant concentration at three different levels (32 factorial design). The effect of selected significant factors were studied in depth on significant responses such as particle size and encapsulation efficiency. The optimized formulation was further surface modified with surfactant (polysorbate 80) so as to enhance the brain targeting efficiency of developed nanoparticles via endocytosis pathway. Furthermore, catalepsy was induced in rodent model and the designed formulations were investigated in comparison with pure drug solution for efficiency in decreasing extrapyramidal adverse effects. The results of in vitro characterization studies demonstrated a narrow size distributed nanoparticles (73.28±2.14nm) with high stability indicating zetapotential (−32.46±1.15mV) and high encapsulation efficiency (78.77±2.83%). In vitro release studies resulted in an extended release of atypical antipsychotic for 60h from drug-loaded optimized nanoparticulate formulations. The catalepsy studies in rodent model demonstrated a significant decrease in extra pyramidal adverse effects as compared to the pure atypical antipsychotic. Thus, the designed antipsychotic loaded polymeric nanoparticulate system may be highly promising for the tremendous improvement of antipsychotic therapy with reduced adverse effects.