The Aboriginal flag will have a permanent spot on the Sydney Harbour Bridge, with the NSW government committing $25 million to install a third flagpole by the end of the year.
Premier Dominic Perrottet says flying the flag alongside the Australian and NSW state flags is an important gesture towards Closing the Gap.
"Our Indigenous history should be celebrated and acknowledged so young Australians understand the rich and enduring culture that we have here with our past," Mr Perrottet said in a pre-budget statement on Sunday.