Two solitary confinement cells used for punishing convicts in the mid-nineteenth century have been discovered on Cockatoo Island.

The cells were finished in 1841 and covered up by 1898 but have now been rediscovered in an archaeological dig on Sydney's largest island.

Sydney Harbour Federation Trust's Libby Bennett says it is an amazing discovery.

"They tell us a lot about what life would've been like on the island, in particular, how they punished the prisoners there," she told ABC News Online.

"The cells have no windows and there's evidence of a basic timber floor and they're very dark and damp and wet so it gives a very good insight into how life was on the island in that time."

The dig was brought about by persistent rumours about the existence of the cells, which are under a cookhouse.

"There's been rumours ... we knew they must have been there, but we were a bit sceptial," Ms Bennett said.

Federal Heritage Minister Peter Garrett also says the discovery is remarkable.

"This is an extremely rare find from Australia's convict past," he said.

"The cells are rare physical evidence from Australia's convict past and will help us to understand what it was like to be imprisoned on Cockatoo Island."

Cockatoo Island, which was listed on the National Heritage List in 2007, was first used as a convict jail in the late 1830s.

It was used for hard labour and severe punishment for more serious offenders.

The island was later used as a government shipyard and remained a major dockyard until 1992.