More than 30 members of the community watched from the public gallery as Labor, Liberal and Green members voted unanimously.

''It's mind-blowing. I could not ever imagine in my lifetime that it would ever be contemplated, let alone put in place,'' Daniel George said. ''It just means the absolute world to hear a government saying 'yes we understand the binary system is not OK'.''

The changes will allow people in the ACT to change the sex listed on their birth certificates, also introducing a new third category, ''X''.

Labor member Yvette Berry told the Assembly the reforms reflected the bravery of people prepared to put their stories on the record. The willingness to share their experiences of frustration, discrimination, powerlessness and indignity had helped people like her walk in their shoes, she said.

Attorney-General Simon Corbell said it was a ''good, indeed a great'' example of his government's support for social inclusion for all members of the community and its acceptance of sex and gender diversity.

For people in the gallery, it was a sign of being accepted into the mainstream.

Mr George was born female in Sydney, but transitioned to live as a man in his late 20s, in 1996, a change he says he could not deny. He said transgender people were marginalised and discriminated against - made worse when they had to show birth certificates at banks or in job interviews.

''It brings tears to our members' eyes,'' he said of the law. ''It's a morale booster. It gives us hope. It gives us credibility. It gives us identity.

''To have it publicly validated in a public mainstream setting it just suddenly gives my parents some kind of validation or hope that this is real and it wasn't their fault.''

For Ashley Arbuckle, born and raised a boy in Wagga, it has the same emotional implications.

''Unfortunately I don't think this legislation is going to change my family's attitude, but it may get them thinking that my choice, and I don't think it was a choice, was the right thing for me. That's what I'm hoping the legislation will do is give them pause.''

Miss Arbuckle said in her late 20s, she began to realise being male was not right for her.

Six years ago, in her 30s, she discovered transgenderism and began to transition. She has been turned down for rental accommodation many times, a problem not helped by a birth certificate saying she is male, a revelation people found shocking, she said.

''It's awesome,'' she said of the law. ''I never thought that something like this would happen.''

Yen Eriksen was born a girl and uses ''female'' where forced by official documentation but said the reality was more complicated.

Eriksen initially identified as bisexual, then lesbian, and now ''gender queer'', presenting as androgynous and sometimes presumed to be a man and other times as a woman.

''It's super progressive,'' Eriksen said of the law.

''And it's really awesome because it says to society that Canberra's a legislative space that's not afraid to recognise that people live outside the binary of male and female.''