The NSW government is promising to pump an extra $6.4 billion into public schools over the next decade to fill the federal government's shortfall.
Liberal Premier Gladys Berejiklian on Wednesday announced the state had finally reached an agreement with the federal coalition following months of tense negotiations.
NSW and other states were left fuming after the prime minister offered a $4.6 billion 10-year peace deal to Catholic and independent educators in September.
That included a $1.2 billion fund that could only be accessed by private schools.
NSW Education Minister Rob Stokes demanded the Commonwealth match that fund with money for public schools to ensure all students were treated fairly.
"In the absence of this, the NSW government has stepped in to provide additional funding to government schools," he said on Wednesday.
"We were determined in this deal to ensure that public schools were not treated as second-class citizens. Every child is important."
The federal government says it is already providing record annual funding for state schools, providing $7.3 billion nationally this year, increasing to $8.6 billion in two years' time.
The NSW government will provide an extra $6.4 billion to public schools from next year to 2027, including a $712 million "equity fund" to make up for the Commonwealth shortfall.
Ms Berejiklian labelled it a "historic" day for students in NSW and ensures funding certainty.
"We want to make sure all children, no matter where they go to school, no matter what kind of school they go to, they get that needs-based funding," she said.
NSW opposition education spokesman Jihad Dib said while the boost to needs-based funding is positive, it's concerning federal and state governments don't agree on the value of education.
"The state government has had to bail out the federal government ... This shows me that at a federal and state level the Liberals don't have an agreed sense of the value of education," Mr Dib told AAP.
NSW is the second state to sign up to the new national deal, which has been under negotiation since mid-2017, after South Australia joined on Monday.
Federal Education Minister Dan Tehan hopes others will follow suit.
"I continue to negotiate bilateral agreements with the other states and territories in good faith and hope to finalise them all soon," he said in a statement.
The funding boost was welcomed by Catholic Schools NSW with chief executive officer Dallas McInerney saying it ends the uncertainty and allows schools to plan for 2019.
"The Catholic sector has always supported the proper resourcing of government schools, who educate two-thirds of all students - including hundreds of thousands of students from Catholic families," Mr McInerney said in a statement.