Easton Woodhead, 21, has spent the past five months in prison waiting for a bed to become available at the Thomas Embling psychiatric hospital.

In November a Supreme Court jury accepted he did not know that what he was doing was wrong when he stabbed to death Morgan Wayne 'Mouse' Perry.

Justice Jane Dixon on Tuesday formally ordered Woodhead - who had had an eye tattooed on the back of his shaved head to mark the spot where he believed he would be shot - to be held at Thomas Embling for a nominal 25 years under a custodial supervision order.

Justice Dixon ordered the case return to court in 15 months for an update on Woodhead's condition.

She said Woodhead had expressed deep remorse now that his mental state had stabilised through medication for killing Mr Perry, 42, with a large Rambo-style knife on January 5 2014 at Enterprize park, near the Melbourne Aquarium.

Woodhead was concerned about the impact the killing had had on Mr Perry's family and friends as well as the impact on his own family over his current situation.

Justice Dixon assured Mr Perry's loved ones that while they might be anxious about the possibility Woodhead could be released at some future date, staff at Thomas Embling had the expertise to treat him for as long as was required until he was well enough not to be considered a risk to the public.

Woodhead, who was found not guilty of murder due to mental impairment, had been living in a 15th floor Flinders Street apartment paid for by his mother and was smoking cannabis on a daily basis when he believed Mr Perry had stolen his motorbike and wanted it back.

The key witness in the case was Sydney psychiatrist Dr Olav Nielssen, who diagnosed Woodhead as having been psychotic before, during and after he killed Mr Perry.

Dr Nielssen, who sits on New South Wales Mental Health Review Tribunal on forensic matters, was called as a defence witness after interviewing Woodhead in prison.

Woodhead claimed he would sit in the corner of his apartment holding a knife imagining that people were about to break in.

"He [Woodhead] did remember believing that people had been turned into werewolves and that people around him had special powers which he now realised could not have been the case," Dr Nielssen said.

"When I asked him about the basis for those beliefs he said, 'I think I hallucinated it and it felt real'."

Dr Nielssen said it was not uncommon for people experiencing the first episode of psychosis and hearing voices not to recognise their symptoms.

"There were descriptions of [Woodhead's] manic behaviour, grandiose ideas such as joining the SAS and speaking incessantly," Dr Nielssen said.

"So there were features of mania as well as the typical features of schizophrenia which is auditory hallucinations, ideas of reference and bizarre delusional beliefs.

"I thought at the time of the offence he was in the midst of an acute psychotic episode and on the balance of probabilities his behaviour was in response to symptoms of mental illness."

But the key Crown witness, Forensicare psychiatrist Claire McInerney, told the jury she believed Woodhead was likely to have been suffering a psychotic episode at the time of the killing, probably paranoid schizophrenia, but knew what he was doing and knew it was wrong.

"I don't see how logically a belief about your father being a werewolf would lead you to assault a completely different person in a completely different context," she said.

The Crown did not dispute Woodhead was mentally ill at the time of the stabbing but that he had killed Mr Perry out of anger and frustration because the homeless man refused to let him take back his motorbike.