Drug users caught with small amounts of illicit substances will have the option to get counselling or pay a fine rather than go to court under a major overhaul of NSW laws.
From early next year police can choose the non-criminal measures when catching people with personal-use quantities of MDMA, cocaine and ice.
The announcement brings NSW into line with all other states and territories and comes amid pressure on the government to introduce a drug-checking regime for music festivals.
Health Minister Ryan Park said he was pleased the new approach would take an estimated 6000 drug users out of the courts.
"More importantly, people with very low amounts will be able to be treated through a health pathway, which is very, very important going forward," he said on Tuesday.
The change was welcomed as a step in the right direction by the Greens, Legalise Cannabis and the social justice arm of the Uniting Church.
"It's a clear signal to the community that the moral panic and law-and-order option when it comes to drug law reform is over in NSW," Legalise Cannabis MP Jeremy Buckingham said.
"This is a modest reform that shows the government is listening to the experts and implementing a health-based response to drug use," Uniting NSW.ACT moderator the Rev Faaimata Havea Hiliau said.
However, the groups criticised the $400 fines for those who were diverted to rehabilitation but did not complete the program.
The Greens also denounced the use of police discretion after data showed the existing cannabis diversion scheme was applied less frequently for Indigenous people.
The commissioner of a 2020 ice inquiry had "specifically recommended" that police discretion be removed from the process, Greens MP Cate Faehrmann said.
Asked why the government hadn't taken steps toward pill testing - another harm-minimisation measure in use in other jurisdictions - Mr Park emphasised that policy would not prevent every death.
"I don't want to give anyone - whether they be a young person or a parent or anyone else - an impression that pill testing is a silver bullet that will stop every harm happening at a festival," he said.
Under the proposed changes, the diversion scheme can apply to those caught with up to 250mg of MDMA or up to one gram of cocaine or ice.
It already applies to people with less than 30g of cannabis.
Those diverted would have the choice to either pay a $400 fine, dispute it in court or attend a mandatory counselling program run by NSW Health.
If they complete the program satisfactorily, the fine will be waived.
The scheme, which has been endorsed by the police commissioner and the chief health officer and was planned by the former coalition government, won't apply to people caught a third time or those with drug-dealing convictions.
Legislation to effect the change will be introduced to parliament this week.
