The state government will support the domestic carrier's decision with a package linked to its $250 million Jobs Plus program.
Launched in October, Jobs Plus aims to encourage companies to establish and expand their footprint in NSW with payroll tax relief, streamlined planning approvals and rebates enabling infrastructure construction.
Rex says it will build a Boeing Flight Simulator Centre in Sydney along with a new aircraft hangar and boost the capacity of its call centre at Orange, in the state's central west.
Premier Dominic Perrottet says the agreement forms part of the government's plan to help NSW bounce back from the damage caused COVID-19.
"A strong domestic aviation sector is critical to our recovery from the pandemic and it's important there is healthy competition in the industry," he said.
"By supporting Rex Airlines to expand its Sydney headquarters we are not only creating thousands of new jobs but signalling to the world that NSW is open and ready to welcome travellers."
Deputy Premier and NSW Regional Minister Paul Toole says the carrier's investment will lead to 1300 direct and 1200 indirect jobs by June 2024.
"This funding builds on our commitment to better connect people across all corners of the state, whether it is locals travelling to the city or Sydneysiders checking out what regional NSW has to offer," he said in a statement.
"Regional NSW is the engine room of the state and this investment will bolster Rex's regional footprint, helping stimulate local economies, boosting livelihoods and creating jobs where they're needed most."
Rex's deputy chairman John Sharp says without the Jobs Plus assistance, the airline expansion would not have materialised.
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