An independent panel is set to review Australia's foreign aid and development program.

The five-month review will be conducted by development economists and experts from the non-government sector, including former Liberal senator Margaret Reid.

Foreign Affairs Minister Kevin Rudd says it is the first independent review of Australia's aid program since 1996.

"This represents some $4.3 billion of investment by the Australian taxpayer each year," he said.

"Fantastic work is being done, lives are being saved, people are being educated, mothers and babies are surviving as a result of what we're doing.

"I just want to make sure we're driving every dollar as far as it can go."

Mr Rudd says the review does not indicate the aid budget has lost its way.

"It's just a timely thing to do," he said.

"In the last five years we have doubled the aid budget and we're on track to double the aid budget again over the next five years."

Non-government aid groups have welcomed the review.

The Government has already slashed the amount of money it spends on private consultants working in foreign aid.

World Vision Australia CEO Tim Costello says the Government should consider putting more money into non-government organisations working in the poorest areas of the world.