The Cabinet has agreed to establish a Royal Commission on the Pike River mine tragedy.
Twenty-nine workers were killed following explosions at the West Coast mine near Greymouth which began on 19 November.
The commission of inquiry will be chaired by Justice Graham Panckhurst. Two other commissioners with relevant expertise in mining and safety regulation will be appointed.
Prime Minister John Key says Royal Commissions are reserved for matters of very significant public interest and the Pike River Coal mine tragedy is one of those.
The terms of reference include investigating the causes of both the first and second explosions in the mine and the cause of the loss of life of the men working in the mine.
It will also look at the general law, systems, and practices and procedures that govern health and safety in underground coal mining.
The Government expects the inquiry will take in the views of the mining companies, families, unions, international experts, government agencies and rescue services.
Mr Key says a Royal Commission is the appropriate form of inquiry.
"This is a tragedy that shocked New Zealanders and we owe it to the families of the men who died in the mine to find out what happened and why."
An initial allocation of $1.5 million has been made to run the inquiry, but Mr Key says it could cost up to $5 million and may take a long time to complete.
The Labour and Green parties are calling for a union representative to be appointed to the inquiry.
Commissions of Inquiry have the powers of a District Court and can be called for a number of reasons, including accidents and disasters.
Witnesses can be summoned to give evidence and required to produce documents.
A Royal Commission is seen to be the highest level of inquiry and usually chaired by a High Court Judge.
In the past, they have been used mainly for policy matters, such as the Royal Commission on Auckland Governance.
A Commission of Inquiry was held into the 1967 Strongman Mine Disaster, while a Royal Commission was convened after the Mt Erebus plane crash in 1979.