Prime Minister John Key has announced a new trans-Tasman agency to regulate medicines, medical devices and new medical interventions.
Work to establish the Therapeutic Products Agency is expected to take up to five years.
Mr Key made the announcement after meeting with his Australian counterpart Julia Gillard on Monday afternoon, ahead of his speech to the Australian Parliament.
He says New Zealand's regulatory arrangements need to be updated, and this is a cost effective and comprehensive way of achieving that.
Mr Key says officials from both countries will begin work on a joint agency immediately.
Currently, medicines are specifically approved for use in New Zealand, but medical devices are just listed on a notifiable database, which should be improved.
Mr Key says both countries agree that, for now, natural health products will not be covered by the new agency but may be in the future.
Joint work on ETS
Australia and New Zealand have also agreed to work together to try to link the two countries' emissions trading schemes.
Ms Gillard, who is under domestic political pressure over her plan to introduce a price on carbon, says both governments recognise that linking global markets provides the most cost effective approach to reducing greenhouse gases.
John Key says it is up to Australia to decide its own emissions policy, but he believes New Zealand's scheme is working.