The government has confirmed it will release hundreds of children and their families from detention centres on bridging visas.
The families of children under the age of 10 will be moved into the community while their refuge applications are processed, after the government approved new bridging visa arrangements.
However, the children must have arrived before July 19 last year to be released.
The government says the program will save $50 million.
There are 876 children in detention, including on Nauru, with 148 on Christmas Island.
The government says previous bridging visas put children under 10 at risk.
New arrangements provide more support for them to go to school, as well as emergency relief payments if needed, and access to health care.
Orientation programs and English language courses will also be available.
People who arrived in Australia by boat after July 19 last year are still subject to offshore processing.
Immigration Minister Scott Morrison defended the decision to release only the children held in mainland detention, and not those in the Nauru or Christmas Island facilities.
The offshore resettlement policy which came into force in July last year was stopping children getting on boats, he said.
"It's important we get those who are in detention on the mainland out of detention," Mr Morrison told ABC Radio.
"But I certainly don't want children getting on boats, and Customs officers and Navy officers having to go back to the gruesome tasks of saving children in the water, and in the worst case, getting corpses out of the water."
A recent Human Rights Commission inquiry into children in detention heard shocking claims of self harm, mental health problems and medical neglect.
But until now the government has dismissed calls to release children and their families, saying the best solution is to stop the people-smuggling business.
Mr Morrison says he hopes to have the children released by the end of the year.
He said the decision was both a humanitarian and financial one.
"It's importantly a humanitarian issue. The government doesn't want to see children in detention," he said.