“Doolally” is a slang expression meaning “eccentric” or “slightly mad.” It comes from “doolally tap”, an old British army slang term meaning “camp fever” and, by extension, used as a term for eccentricity or madness.

“Doolally” is an Anglicised version of “Deolali” which is the name of a small hill station and a census town in the Nashik district of the Indian state of Maharashtra, about 160 kilometres (100 miles) northeast of Mumbai. It comes into the story because of its role in British colonial times. The Deolali transit camp was a former British army facility used as a transit station for soldiers awaiting transport back to Britain via Bombay (now Mumbai).

The “tap” in the original expression was a term used for Indian malarial fever and came from the Urdu “tab” ( “malarial fever”), and ultimately from Sanskrit “tāpa” “fever; heat; pain, torment”).

Understandably, soldiers kept waiting at the camp for onward transport back home could become restless and the impatient frustration – the typical signs of “doolally tap” – were easy to recognise.

The term "doolally" survived the end of British rule in India and is still to be heard today, used for people who appear mildly oddball or have started acting a little bit crazy.

More Info: en.wikipedia.org