Purpose: The aim of this study was to develop and characterize a novel sustained-release drug delivery system of cyclosporine-A (CsA) using hydroxypropyl methylcellulose (HPMC) and xanthan gum (XG) for treating dry eye disease (DED). Methods: Polymeric inserts of CsA were prepared using the solvent casting technique with a 23 full factorial design to evaluate the effect of HPMC and XG ratios and drug content on thickness, folding endurance, wettability and in vitro drug release. Inserts were also evaluated for drug content, moisture absorption and loss and surface pH. Inserts with an optimized ratio of HPMC and XG were sterilized with UV light and evaluated for morphology, thermal analysis, Fourier transform infrared spectroscopy, stability at 4°C, 25°C and 40°C, cytotoxicity in cultured bovine corneal endothelial cells and anti-inflammatory effect in Jurkat T cells. Results: The addition of XG increased the CsA release duration and enhanced the folding endurance of films. All films showed uniformity in drug content and thickness. Formulation F4 composed of 1% HPMC and 0.25% XG exhibited good folding endurance and sustained CsA release for up to 20 h. Sterility testing of F4 using plate and direct inoculation confirmed the formulation sterility and validated the sterilization method. The formulation was stable for at least 3 months at 4°C, 25°C and 40°C. No cytotoxicity was observed in cultured bovine corneal endothelial cells for up to 24 h. The anti-inflammatory effect of CsA was intact in ophthalmic inserts. Conclusion: In conclusion, combination therapy with HPMC and CsA can be a potential once-a-day formulation for treating DED.