I am wracking my brains trying to remember the name of a movie I saw when I was a kid. The main character is a girl who's father was a mad scientist (possibly a satanist?) who murdered his patients and, using some kind of black magic (involving the requisite trepanning and carving symbols all over the bodies of his victims) to turn his victims into zombies. She is locked up in a mental institution because she claims that someone performed brain surgery on her to remove her memories of her child hood. She makes friends with a charming pyromaniac and an insane nun who ends up blessing a water tower to "cleanse the grounds" of the mental institution after it is revealed that her father used to work there, and is still, infact haunting the grounds and planning to take over with his horde of zombies.
The twist at the end of the movie is that, after the pyro blows up the water tower and sends the resevoir of holy water to flooding the entirety of the grounds, she finds her father's body, takes his ring off, puts it on her finger and apparently either becomes evil herself or gets possessed by her father (her eyes start to glow red).

I think you're thinking of The Dead Pit, which I think of mostly as "that movie where the VHS box had light-up zombie eyes".

YES! thanks! You're fantastic!

Also one of the funniest 'get the leading lady topless' moments in movie history.

For a fine runner-up, let me direct you to Larva.