The Corrections Department is to receive $14 million to help offenders with mental health issues.
The money will be used to enhance mental health services for offenders in prison and for those released in the community over the next two years.
A Corrections study - released today - found that 62 percent of prisoners had some form of mental health or substance abuse disorder in the last 12 months, and 20 percent had both these disorders.
The disorders often went undetected or were not treated properly.
The new funding will help contract mental health clinicians and support workers to work with offenders in prison and in the community.
It will also be used on supported accommodation for some offenders, as well as more social workers and counsellors, and a wraparound post-release support service for prisoners and their families with multiple mental health needs.
The police will also receive funding to enhance information sharing on mental health.
Corrections and Police Minister Judith Collins said it was a "significant increase" in support for offenders suffering from mental illness.
"Offenders' mental health needs can escalate quickly and tragically. We want to get them the help they need early, and reduce the likelihood of them harming themselves or those around them," she said.