The Walama List pilot program, due to begin next year in the NSW District Court's Downing Centre, hopes to reduce re-offending and the over-representation of Aboriginal and Torres Strait Islander people in the justice system.
Attorney-General Mark Speakman says the pilot program "aims to bring more community involvement into the judge's sentencing process".
He hopes this will also build trust in the justice system and divert Aboriginal and Torres Strait Islander people into support services that can address the causes of crime.
The "community-led sentencing approach" will function as a sentencing court for Indigenous people who have matters before the District Court.
Participants will be drawn from Sydney, Parramatta, Campbelltown and Penrith District Courts.
Indigenous people due to be sentenced will be eligible if they plead guilty, sign an agreed statement of facts, and consent to be dealt with in the Walama List.
Aboriginal Legal Service principal legal officer Nadine Miles was "cautiously optimistic" about the program and said participating offenders who had accepted responsibility for their actions by pleading guilty were not in for a "soft-touch" sentencing.
"It's probably going to be a harder, more challenging option because they have to confront their issues, engage honestly... and offenders will have to commit to change," she told AAP.
Some serious violent crimes and sexual offences are excluded from the pilot.
During sentencing, Indigenous elders and other respected individuals help the sentencing judge with advice on the offender's background and possible reasons for their behaviour.
They may also be required to explain relevant kinship connections and advise on cultural practices and perspectives relevant to sentencing.
NSW Aboriginal Affairs Minister Don Harwin says the pilot supports NSW's commitment to the Closing the Gap agreement "by embedding Aboriginal customs and learnings into the justice system and supporting Aboriginal people to drive better outcomes".
NSW District Court chief judge Derek Price says the Walama pilot is the next step to establishing a Walama Court, a specialist court that would sit similar to the Drug Court which deals with criminal offending stemming from drug dependency.
"The support of the attorney-general and funding for the pilot enables the essential involvement of elders in sentencing conversations and importantly for elders to be remunerated for their participation," Judge Price says.
Funding for the pilot program is yet to be finalised but the government is committed to providing it with the resources needed to operate effectively, including additional funding if necessary.
NSW Bar Association president Michael McHugh says the Walama List "will enhance rehabilitation prospects for Indigenous offenders, and has the potential to realise cost savings for the justice system by reducing recidivism rates".
He says a fully funded Walama Court should follow and would help NSW meet its goal to reduce the rate of Indigenous incarceration by at least 15 per cent before 2031.
The Walama List will operate for one week every month and has the capacity for 50 participants at a time, with the program expected to run for a number of years.
In Dharug language Walama means "come back".
