The thing is Sshbear, you say you want to help him, but how are you going to do this? What effective plan do you have to help him?
It seems the only plan you have at the moment is just doing more of what you're doing now, and go along with his bizarre behaviour and deluded thoughts. This risks yours and your children's safety. Everyone on here, even a consultant psychiatrist, is telling you what a dangerous situation you and the children are in. Why are you not taking this on board?
You need a new plan. You have to concentrate on getting him the mental health assessment and treatment that he desperately needs. If he is refusing to do this, then you need to provide him with an incentive to change his mind. You leaving him, or insisting that he goes to stay somewhere else, may force him into agreeing to get treatment. Therefore, you leaving him is actually helping him.
(As others have said, you need to be very very careful about how you manage leaving him if you were to leave, as this period puts you and the children at even greater risk of harm. He is most likely to believe that you're leaving for another man. Woman's Aid -or the Oz equivalent -would be able to advise you how best to do it, including what legal protection you may be able to get to help protect you).
You clearly love him and want to stick by him. Once he is well and receiving treatment, then you can look at living together again, and rebuilding a life together on a healthier basis.
I think you probably need to go back to your parents and tell them the whole awful truth of your current situation. And do the same with his family. Also, can you 'lose' that baseball bat?
Mental illness is a very cruel illness for everyone whose lives are touched by it. It doesn't cure itself and tends to create more and more chaos and very real risk of danger.
Please think about making a proper plan NOW to get him the help he needs, and to ensure your and the children's safety. We're all hear to listen and support you to do this.