When my dad had mild Alzheimer's, he had a spinal fusion.  The anesthetic drove him much deeper into Alzheimer's, plus he got a staph infection.  He was on 16 prescription medications.  He started seeing "bugs" crawling on the walls.  He was up constantly making and remaking his bed, even though he was supposed to lie still.  Sometimes he would be acting like he was rebuilding an auto engine (he used to be a mechanic.)  He would disassemble the medical equipment in his room and at times act so freaky they put him in this kind of over-the-bed mesh restraint cage so he wouldn't hurt himself or anyone else.

We got a psychiatric consult.  The psychiatrist asked him about 10 questions and decided my dad had schizophrenia.  (Especially quick to do so once I revealed that his father and I had schizophrenia.)  But my dad was about 78 yrs old and never showed any overt signs of schizophrenia before his surgery and subsequent medical problems.

I think the medications he was taking contributed to his hallucinations/delusions.  And with the elderly, anesthesia often makes any mental problems a lot worse.  Does your dad have Alzheimer's or any recent surgery for which he had anesthesia?  If he is on medication, you might also ask for a med consult with the prescribing physician(s).  Sometimes one doctor prescribes something that doesn't do well with another medication the person is already on.  And it's usually because the doctor is uninformed about other medications and/or their interactions.  You could also consult with a pharmacist if this might be the case.

Otherwise, I think it unlikely your father has really developed schizophrenia.  Sometimes people also have "waking dreams" (I can't remember the medical term) and have what may seem later to be hallucinations, when they are really only a part of the sleep process.

I wish you and your father the best and I'm glad you are taking an interest in his physical and mental health.