Vulnerable people with severe mental health issues will have around-the-clock support under a privately sponsored scheme aimed at reducing lengthy hospital admissions.
The community-based Resolve Program will help more than 500 people in western Sydney and Orange, in the state's central west, who have been hospitalised for mental health issues over extended periods.
From October, participants will have access to crisis care with 24 hours a day peer support and community outreach support at their homes.
"The costly, isolating and stigmatising impacts of long periods in hospital can be avoided when community supports such as those offered under the Resolve Program are in place," Flourish Australia CEO Pamela Rutledge said in a statement on Friday.
"This program is about helping people with a mental health issue find, maintain and lead meaningful, independent lives in the community."
About 2000 people in NSW spent between 40 and 270 days as a mental health inpatient each year between 2012 and 2015, Flourish Australia said.
The state government is set to save $30 million through the privately invested program by lowering hospital admissions and reliance on other services.
NSW Treasurer Dominic Perrottet said the $7 million social benefit bond program is an innovative way of tackling social challenges.
"These bonds harness the power of private sector investment to take preventative action that makes a real difference to people's lives," he said.
"It is fantastic that this program will now play a significant role in helping people who live with mental illness," he said in a statement.
The program's funding will be raised by Social Ventures Australia.
© AAP 2017