The Office for Mental Health will operate as a part of ACT Health despite a consultant report urging it to remain independent of the increasingly fragmented directorate.
The office is now formally established more than 18 months after it was announced as a key election pledge.
Minister for Mental Health Shane Rattenbury said the office would develop a renewed vision for mental health in the ACT.
In the 2017-2018 Budget, $2.9m was allocated over four years to establish the office which was part of the Labor-Greens parliamentary agreement.
The office will prepare a practical mental health reform work plan within 100 days.
It will be led by a coordinator-general, and will involve representatives from across ACT Government. A nation-wide recruitment process for the new role will start in coming days.
While a consultant's report by Synergia recommended the office be an independent agency sitting outside ACT Health, the government decided to keep it within the directorate but "retain a level of independence".
The Government has agreed to 17 of the report's recommendations and agreed in principle to three recommendations.
"It has different priorities to health and these are best pursued by establishing the new body outside of health," the consultant's report read.
"An independent structure within government also encourages the office to provide a new and reliable source of frank and fearless advice about mental health to the minister, cabinet and the Canberra community."
Mr Rattenbury denied the office was another layer of unnecessary bureaucracy within ACT Health, which is due to split into two agenices in October.
"This is about acknowledging that mental health care is much more than just clinical services," he said.
"If we can intervene earlier and intervene in other places we can provide people with a better response."
Mr Rattenbury said people were increasingly coming forward to seek help with mental health and the service system needed to make sure it was keeping up with demand.
He said the establishment of the office recognised that people were frustrated by some cracks in the system.
"I see it much more as adding something on, bringing new resources and bringing new ideas," Mr Rattenbury said.
"It will be a force for change, a force for excellence and force for improvement."
Mr Rattenbury said it would be an agency that drives improvement, looks to what other jurisdictions are doing and acts as a "critical friend".
Opposition health spokeswoman Vicki Dunne labelled the agency a "letdown" saying the territory needed to address a chronic shortage of specialist mental health workers.
“I am completely underwhelmed by Minister Rattenbury’s long-awaited solution to issues in Canberra’s mental health system,” Mrs Dunne said.
“It has taken Minister Rattenbury more than 18 months to establish the bleeding obvious: that the Office for Mental Health should have a whole of government focus.
“We already knew that mental health services needed to be available and coordinated across ACT government agencies.
“Further, the total budget of $2.9 million over four years will pay for little more than administration.
“This will not address the chronic shortage of mental health specialists and the rising demand for specialised treatment.
“Minister Rattenbury’s announcement denies the reality that people with a mental health illness desperately need specialised services, and a mental health system that is easy to navigate."