Quarantine will be a thing of the past for fully vaccinated international arrivals in NSW from November.
But while premier Dominic Perrottet has said the announcement will return Sydney's status as a global city and boost tourism, Prime Minister Scott Morrison says only Australians will be allowed to enter the country under the plan.
Mr Perrottet on Friday announced international travellers won't have to isolate upon arrival in the state if they are fully vaccinated and test negative for the virus on departure and arrival.
NSW is the first state in the country, working with the Commonwealth, to announce it will open up to people from overseas and scrap quarantine rules.
"This decision today is a big one, but it is the right one," Mr Perrottet said on Friday.
"We need to rejoin the world. We can't live here in a hermit kingdom.
"We want people back."
Domestic travellers will not be required to be vaccinated or undergo testing to enter NSW.
NSW Health deputy secretary Susan Pearce says health officials support the plan, with upwards of 90 per cent of the state's residents likely to be fully vaccinated by November.
However, hotel quarantine will remain a requirement for unvaccinated overseas arrivals, with 210 spots available a week.
The decision renders a trial of home quarantine irrelevant, Tourism and Jobs Minister Stuart Ayres said.
A small number of fully vaccinated people were allowed to isolate at home for seven days upon their return to NSW, instead of spending two weeks in hotel quarantine.
"Our ability to do that at scale is immensely challenging," Mr Ayres said.
"The resources at the back end of being able to monitor those people are not commensurate with ... our vaccination rates."
Should new COVID-19 variants emerge, NSW Health will advise the government if a return to quarantine arrangement is necessary.
Mr Perrottet said returning Australians will be "the first cab off the rank", but the move will revive international tourism in the state too.
However Prime Minister Scott Morrison on Friday afternoon said the federal government had only approved a plan to bring back Australian residents and citizens.
"The Commonwealth government has made no decision to allow other visa holders - skilled visa holders, student visa holders, international visitors... to come into Australia under these arrangements," he said.
"That should provide some sense of assurance to those in other states that all we're talking about now is Australian citizens, residents, and their immediate families."
There are concerns NSW's proposal could further delay the opening up of the country's internal borders.
Mr Perrottet also confirmed restrictions will ease further in NSW from Monday, with the state expected to hit 80 per cent full vaccination coverage on the weekend.
The number of guests at weddings and funerals will be unlimited and up to 20 visitors will be allowed in homes.
Community sport can resume, masks will no longer be required in offices, and drinking while standing up and dancing indoors is back.
NSW Deputy Premier Paul Toole confirmed the "unpopular" decision to delay the resumption of travel between Sydney and the regions until November 1 was because of the risk to communities where vaccination rates lag.
Only 36 per cent of regional local government areas have populations where 80 per cent are double vaccinated against COVID-19.
"We have to make sure that there is a balance between protecting communities and opening up," Mr Toole said.
Existing support for businesses in regional NSW will be extended until November as a result.
Booking caps for hospitality venues will also be scrapped next month.
Some 399 new local COVID-19 cases were diagnosed in NSW in the 24 hours to 8pm on Thursday, and four more COVID-19 deaths.
Australian Associated Press