The billionaire businessman's mental health challenges have been extensively documented, revealing in 2020 he had bipolar disorder.
"It is no secret that I have struggled with mental health problems in the past," Mr Packer said in a statement on Tuesday.
"I am a passionate advocate of finding ways to improve mental health outcomes and I am hopeful that my contribution towards this research will generate positive outcomes in this field and in so doing significantly improve the lives of people battling mental health issues both in Australia and around the world."
The $7m will support mental health research at University of NSW in Sydney and establish the James Packer Chair in Mood Disorders.
The professorial chair will lead a new unit at the university and the Mindgardens Neuroscience Network, that will conduct mental health research with a particular focus on mood disorders such as bipolar.
The donation will also fund a team of researchers.
Mindgardens is the first research centre in Australia to focus exclusively on disorders that involve the brain, emotions, nervous system and thinking processes.
UNSW has an acclaimed mental health community through the Mindgardens Neuroscience Network at the Randwick Health & Innovation Precinct which includes NeuRA, the Black Dog Institute, the Prince of Wales Hospital, Sydney Children's Hospital, Randwick and Royal Women's Hospital.
Professor Attila Brungs, vice-chancellor and president of UNSW Sydney said the gift will support collaborative research and drive meaningful change in the field.
"Research changes people's lives," she said.
"We appreciate James Packer's generous donation, which will enable UNSW researchers to develop new treatments and interventions for people experiencing mental health disorders.
"Mental health is a pressing global challenge, and this gift will help us make real progress in this critical area of research."
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