The legal action launched in Christchurch last night will represent people who have been deported or detained under certain sections of Australia's Migration Act.
Advocates say the New Zealand government could also be next in line for a legal challenge.
In 2019, and after 33 years of living in Australia, Adrian Solomon-Maere was deported to New Zealand for breaking an intervention order.
Before his deportation, the 60 year old spent two years at the Christmas Island detention centre where he faced what he called "horrific" conditions.
Solomon-Maere said the lawsuit was a huge moment in the deportees' fight against Australia's government.
"We want something done. It's a domino effect, it affects everybody that's been through this whole regime, this whole detention, immigration thing. It's massive and the families that it's splitting up puts a dent in your life," he said.
The lawsuit will attempt to establish that indefinite detention carried out by Australia was illegal.
It also wants Canberra and the security firms it employs to be held more accountable for the treatment of prisoners.
Another target is the closure of offshore facilities, including the Christmas Island detention centre.
The deportees are not after financial compensation and have agreed that it is not realistic in most cases.
Advocate for deportees Filipa Payne, founder of the Iwi n Aus and Route 501 groups, said after years of being victims, it was time for them to take the fight to the Australian government.
"They've been persecuted many of them unjustly and many of them without going through a judicial court system, and that persecution is life-altering.
"So we actually have to stand up for democracy and stand up for our own people," she said.
Everyone who has been, or is currently, detained under section 116 of Australia's Migration Act and those under section 501 is eligible.
People detained in the offshore detention facility in Nauru under 116 or 501 will also be eligible, even though the facility is run by a Nauruan government commercial entity.
The class action will cover only those affected after 2014 when changes were made to the Act.
Payne said deportees were looking at possible action against the New Zealand government which she said was doing doing nothing to make the system viable in New Zealand.
"We have so many people here that are needing help and support, and the New Zealand government, we've told and asked continuously to get active in this but they haven't."
Action against New Zealand could focus on its role in imposing post-release conditions on deportees who had already served their sentence.
Another advocate for deportees, Australian-based migration agent Erina Morunga, said a class action allowed for greater scrutiny of deportations.
"From there, what we'd hope to see is that [it] will create some movement in this space where things have to be looked at more objectively from both sides of the Tasman," she said.
Legal proceedings against the Australian government will likely take place in the Federal Court.
No date has been given for when the class action will start.
The legal work is being carried out by human rights law firm LawAid International Chambers.