The Northern Territory has the opportunity to "lead the nation" with its new Aboriginal Justice Unit, a former Victorian attorney-general has said.

The unit will consult with Indigenous communities across the Territory on how to lower Indigenous incarceration rates and, in the process, form an Aboriginal Justice Agreement between the Government and Aboriginal communities.

Rob Hulls was the attorney-general in the Victorian Labor government between 1999 and 2010 and oversaw the creation of the state's own ongoing Agreement in 2000.

Mr Hulls said a confluence of events in the NT has made it a hotbed for change.

"The Northern Territory has the opportunity to lead the nation," he said.

"When it comes to addressing over-representation of Aboriginal people in the justice system … all the stars are aligning.

"You've got a royal commission … you've got a new government that has a real passion to make a difference and I think that now's the time to be in the Territory."

Mr Hulls said implementing the agreement in Victoria was, and continues to be, a long-term process that is about continued communication with Aboriginal communities.

"You know there'll be knockers, there'll be people who'll say that the process isn't appropriate, it's taking too long," he said.

"But once it's born out of the Aboriginal community in real consultation with the government, real and long lasting changes can be made."

The Aboriginal Justice Unit will spend the next year consulting with communities about a range of issues including mandatory sentencing and how to build trust in the justice system.

The government also outlined it intended to focus on what practical solutions and strategies could be implemented to reduce levels of incarceration and give more local decision-making to communities.

Mr Hulls said critics who did not believe Aboriginal customs and culture could sit alongside or inform the way western law was conducted were wrong.

"No governments can sit back and allow Aboriginal Australians to be incarcerated at the rates they are without actually realising that the justice system needs to change and needs to be more culturally sensitive," he said.

Community and legal services have welcomed the announcement of the Aboriginal Justice Unit and the Agreement.

"Aboriginal people have been asking for this for generations and the government's always ignored it," the chief executive officer of the North Aboriginal Justice Agency, Priscilla Collins, said.

"It's absolutely fantastic, it's what we need."