Millions of dead fish surfaced at Menindee on the Darling-Barka River earlier this year due to low levels of dissolved oxygen in the water, with debate over the role of water managers, prolonged floods and other factors.
Water Minister Rose Jackson has appointed the state's chief scientist, Hugh Durrant-Whyte, to lead a panel of independent experts to get to the bottom of the February-March fish kills.
"We do want it (the inquiry) to be independent," Ms Jackson told reporters on Monday.
"If there were mistakes made by government agencies, I want and expect them to be laid out as part of the recommendations."
The latest incident, following extensive flooding upstream, came after a widescale fish kill in Menindee during a drought five years ago.
The inquiry will canvass prior environmental conditions, management and sufficiency of water flow during the event and whether monitoring data and other information could predict future fish kill events.
The adequacy of government agencies' response, including in terms of public health, is also in the terms of reference.
The probe will run alongside an investigation by the Environment Protection Authority, which is treating the fish kill as a pollution incident.
Menindee local Graeme McCrabb said communities along the Darling-Barka want the inquiry to answer questions about possible over-extraction of water and chemical contamination.
"There have been no answers to those questions and there's a huge amount of mistrust," Mr McCrabb told AAP.
"I hope this is a chance to start building trust with government and agencies that's long overdue and is really lacking."
The outback town was still recovering two months after the disaster, while the faint smell of dead fish lingered, he said.
"Tourism's just copped a shellacking, some of the traders in town claim it was the worst Easter they've ever had. It's just one of those underlying tragedies.
"At the moment, it's just beautiful out here, it's calm, the water on the lakes is fantastic, there are plenty of camping spots, but we're probably still seen as the fish kill capital of the world."
While Professor Durrant-Whyte will take conditions upstream into account when making his findings, water entitlements were outside the terms of reference.
The biggest challenge for his inquiry will be the lack of data about the river's condition before the February-March fish kill, he said.
"Sometimes, measurements are made some time after the event occurs so it's quite tricky sometimes to work out on that basis what could or might have happened," Prof Durrant-Whyte said.
The non-government expert panel will be largely drawn from academia while a community advisory body will include Indigenous people and other locals.
Prof Durrant-Whyte and his deputy will also spend a week in Menindee at the end of the month.
The local community "understandably feel frustrated and forgotten by the NSW government" and it would take more than words to rebuild their trust, Ms Jackson said.
But she hoped actions taken since the Minns government took office, including the inquiry and a commitment to act on its findings, would "be the building blocks of establishing a better, more trusting, long-term relationship" with communities across far west NSW.
The inquiry's final report and recommendations are due on August 31.
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