The man whose bloodied hands were wrapped in paper bags after randomly stabbing to death Brian Liston at a Sydney bus stop has been found not guilty of murder.

William Rodney Cahill, 29, was found not guilty by reason of mental illness of the random attack on the 51-year-old primary school teacher two years ago in Camperdown, in inner-western Sydney.

Cahill, who suffers from severe schizophrenia, will still be detained in custody at a correctional centre or facility such as Long Bay Hospital.

Justice Geoffrey Bellew handed down his decision following a special hearing into Mr Liston’s death early this week after Cahill was declared mentally unfit to stand trial.

Justice Bellew found Cahill not guilty by reason of mental illness to murder and two counts of being armed with intent to commit an indictable offence.

A disturbing police interview of Cahill following the attack on Mr Liston shows him shirtless in a blue forensic jumpsuit with his hands encased in brown paper bags.

During the interview, played at this week’s special hearing, police ask Cahill what is his “understanding of the situation”.

Cahill replies “that I’m going to jail for a while. That’s my thoughts”.

Asked what he thinks he is going to jail for, Cahill says “for stabbing someone”, but appears to think he killed somebody other than Mr Liston.

At one point during the interview, Cahill holds apart his paper bagged hands to show the size of the knife he used to carry out the attack.

The attack happened on the night of December 10, 2015 when Mr Liston, a father of two, was waiting for a bus on Salisbury Road, Camperdown following his regular German class.

Cahill, who lived in a transitional house for people with mental health conditions, walked from his apartment across the street with a 15cm long serrated knife.

In the taped police interview, Cahill tells officers that he had been inside his unit when he spotted someone at the bus stop he thought looked “shady”.

He went outside to “give him a yelling”, then instead “stabbed him a bit”.

As Cahill began stabbing Mr Liston, a witness heard the victim yell out “why are you doing this?”

From a parked car, Terina Toko saw Mr Liston start to run before falling over in the street, the NSW Supreme Court special hearing heard this week.

Ms Toko’s boyfriend, Joshua Smart, saw Cahill strike Mr Liston who jumped up, yelled “You’ve just stabbed me,” and “I’ve been stabbed” and tried to push away his assailant.

At one point, Mr Smart saw the victim throw a shoe at Cahill, to no avail.

Cahill followed, grabbing Mr Liston on the back of the shirt and continuing to stab him five to 10 more times.

Several witnesses told the hearing Cahill stabbed Mr Liston “slowly and deliberately” in the face and neck.

A neighbour, Parmajeet Pal, heard screams of “Somebody help me, he is going to stab me to death” and ran out and kicked Cahill.

Police and an ambulance were called and Mr Liston was taken to Royal Prince Alfred Hospital.

He died soon afterwards from stab wounds which pierced his lung and heart.

At the Strathfield South Public School teacher’s funeral, Mr Liston was remembered as a “gentle and loving” husband and father.

His two children remembered their “Papa” who “taught us the joy of music, singing and a love of language ... a love of learning, of books, and ­personal growth”.

“Papa taught us a love of nature, of the bush and the beach, so we pray for everyone who lives in this world that we all realise our shared destiny and join together to protect our precious planet,” his daughter Freda told mourners.

William Cahill, who was diagnosed with schizophrenia in 2006 when he was a teenager, had only spent brief periods since then out of hospital, the court heard this week.

Cahills “suffers from a chronic and treatment-resistant schizophrenic illness which is severe in nature” psychiatrist Dr Richard Furst told the hearing.

After finding Cahill not guilty by way of mental illness on all three counts, Justice Bellew has ordered that the Mental Health Review Tribunal determine where he be held.

His full judgment will be released at a later date.