Doolally means crazy. The origin I'm not sure of, though as it was popular amongst the Raj I suspect a Hindi root. Perhaps the redoubtable Indobrit can confirm or deny?
On the other hand its amazing what you find if you leaf through your old notes..... From Deolali, a town near Bombay. Time-expired military were sent here before being sent home by troop ship. The wait could be a long one & troops could acquire prison sentences, venereal disease & other offences of protracted boredom. The practice of sending troops here was eventually abolished.
I blush at my friend Incitatus's description of me as "redoubtable"...
:o)
And I came upon this topic too late to do any more than confirm his contribution in re: the town of Deolali.