The Baird government has announced its intention to return Goat Island at the centre of Sydney's harbour headland to Aboriginal hands.

"Goat Island has enormous cultural heritage significance for Aboriginal people," said NSW Premier Mike Baird. "We are committed to ensuring Aboriginal leadership in management and decision-making for the sustainable use of Goat Island.

Goat Island was owned by Bennelong's family when the First Fleet arrived in 1788.

"This is an incredible opportunity to recognise this unique site always was, and always will be, Aboriginal land."

Fairfax can reveal that the Baird government has taken its first steps to transfer management and ownership of the land to its traditional owners.