NSW Labor says it will consult on a treaty with the state's Indigenous communities if it wins the state election in March.
The party will spend $5 million on a year-long consultation process as part of a move towards a more formal treaty process.
Opposition Leader Chris Minns says it is not for his government to decide what the treaty will look like.
"For too long government has passed edicts down from the top to the bottom, and we know that hasn't worked," he told reporters on Saturday.
"If we want to realise improved justice, education, health and cultural outcomes for First Nations people, we must place First Nations communities at the centre of decision making."
A treaty would be a binding agreement between the state and its Indigenous communities, setting obligations for both sides to act on issues and improve outcomes.
Labor's treaty commission would travel across the state to see what shape the agreement would take.
NSW has been an outlier among states and territories with most either supporting a treaty or establishing negotiating bodies.
"That conversation with First Nations people must begin," Mr Minns said.
"We cannot be one of only two states in the entire country that hasn't begun a process to treaty in Australia."
The NSW Aboriginal Land Council backed the announcement.
"We welcome the commitment made today to be able to start that pathway to treaty," Gamilaraay woman Anne Davis said.
"We can do a lot better if we actually work in partnership, and we're sitting at the table as genuine partners."
The announcement comes as debate continues at a federal level over the voice to parliament, which NSW Premier Dominic Perrottet has backed.
He has previously said he was determined to improve the lives of NSW's Indigenous communities, but he has not expressed support for a treaty.
Aboriginal Affairs Minister Ben Franklin said over its last term the government had delivered $716 million in programs and initiatives that pursued "elements of treaty".
"We are delivering and putting Aboriginal people at the heart of our decisions everyday and funding grassroots Aboriginal communities, organisations and services," he said.
NSW Treasury documents showed Indigenous-controlled organisations delivered more successful services to their communities than governments and non-government organisations, opposition Aboriginal affairs spokesman David Harris said.
"If you put the social and moral and ethical points aside, this is really an economic reason for proceeding with treaty, to sit down together with communities to develop programs that will be successful," he said.
Mr Minns would not be drawn on whether his plans would resemble Victoria's Treaty Authority Bill.
"We're not going to get into that today, primarily because we haven't started negotiations with First Nations people because obviously we're not in government," he said.