A new report from the Justice Reform Initiative says incarceration rates in the region are four times the Australian average for adults - and five times higher for children.
Prisoner numbers have grown by more than 30 per cent over the past decade, with the number of Aboriginal and Torres Strait Islander adults in prison rising by 34 per cent.
Indigenous people are significantly over-represented, accounting for 85 per cent of all inmates despite making up only 26 per cent of the NT population.
Almost three-quarters of people in prison have been locked up before, and 35 per cent are being held while unsentenced.
Children on remand regularly account for more than 80 per cent of all young people in custody, the report says.
Justice Reform Initiative Executive Director Mindy Sotiri said there was a clear need for greater investment in policies and programs to break the cycles of disadvantage which kept bringing people back to prison at enormous cost to taxpayers.
"The evidence is clear - prison does not reduce the likelihood of reoffending," Dr Sotiri said.
"It entrenches existing disadvantage and increases the likelihood of ongoing criminal justice system involvement, often over generations.
"Aboriginal and Torres Strait Islander populations have suffered the brunt of this failed policy, with the over-representation of First Nations people in Northern Territory prisons both reflecting and reproducing systemic disadvantage."
The report found taxpayers bankroll more than $146.6 million on prisons in the Territory each year, with $122,496 required to keep each adult in jail.
The Northern Territory government spent more than $73 million on youth detention last year, with the cost for each child put at $3852 a day.
Dr Sotiri said while there was no single fix to reduce prison numbers, there were multiple proven, cost-effective alternatives.
"Some of the reforms required are legislative, like abolishing mandatory sentencing and increasing the age of criminal responsibility to 14," she said.
"Other evidence-based reform areas operate outside of the justice system and in the community - addressing homelessness, social and cultural community connection, and facilitating access to a range of services and supports, including for mental health, cognitive impairment and problematic drug and alcohol use."
Dr Sotiri said "tough on crime" rhetoric did not make the community safer, nor did the over-use of imprisonment.
"If we genuinely want to build a safer, more cohesive community, we need to invest in community-led programs that address the drivers of crime and incarceration and provide pathways out of prison for people who need support in the community," she said.
"Governments around the world are acknowledging jailing is failing and changing their approach.
"It's time for the NT to invest in people, not prisons, and do the hard work to tackle the underlying social issues that funnel many disadvantaged people into the criminal justice system."
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