Australia's peak body for Indigenous children has welcomed the NSW government's commitment to a $900 million five-year investment to better support vulnerable families, keep children safe, and drive reform of the child protection system.

40 per cent of the investment—almost $350 million—will go directly to Aboriginal Community Controlled Organisations (ACCOs), who the government said in a statement "are best-placed to support Aboriginal children and families to stay safely together".

Describing it as a "landmark move" that will direct funds to ACCOs to help keep families together, SNAICC – National Voice for our Children, says its the kind of action they have been long-calling for to help Indigenous families across the country.

Chief Executive Catherine Liddle said the decision is a "turning point," saying they have been telling governments for decades that Indigenous-led solutions work.

"By working in partnership with state peak bodies and ACCOs this announcement represents a significant step towards working in true partnership with the Aboriginal and Torres Strait Islander community," Ms Liddle said.

"It acknowledges what we have known for decades - that our ACCOs are best placed to support Aboriginal children and families to stay safely together."

Family Preservation services across NSW offer support to more than 4,000 at-risk families each year, focusing on preventing children from entering foster care, improving family functioning by creating safe and stable home environment, building parenting skills and confidence, and supporting healthy child development.

The NSW government said the reforms were developed in partnership with AbSec and ACCOs, and ensure Aboriginal organisations "take a leading role in designing and delivering services by and for their communities".

AbSec chief executive John Leha said it was more than a "policy shift," calling the announcement "an act of justice".

"It restores our communities' right to care for our children and young people in ways that reflect who we are, where we come from, and what we need to thrive," he said.

Ms Liddle said by actively backing Indigenous-led service providers, the government was changing the way it does business for First Nations people.

"We know that's key to changing and accelerating progress towards the targets in Closing the Gap," she said.

"We have seen that work in action on other targets, and now we're seeing a significant step towards addressing the overrepresentation of Aboriginal and Torres Strait Islander children in out-of-home care (OOHC) in NSW."

The program's focus on preventing children from entering the foster care system and supporting families in the home environment was also enthusiastically welcomed. Ms Liddle argues NSW has now set a "new national benchmark".

"Evidence shows that ACCO-led prevention programs and family supports are key to addressing the over-representation of Aboriginal and Torres Strait Islander children in OOHC," she said.

"Now it's time for every other state and territory to step up—or risk leaving their most vulnerable children behind."