The review will specifically look at the Inspector-General for Water Compliance's ability to take action against those who take more water than they are entitled.
This week, the coalition declared it would oppose Environment Minister Tanya Plibersek's new Murray-Darling Basin plan, which was brokered with basin states except Victoria.
The plan extends timelines and introduces the options of voluntary water buybacks, which some states and the federal coalition oppose because of the impact it could have on access and the price of water.
Water buybacks allow farmers to sell their water directly to the government.
Third and fourth generation mother and son rice farmers Margaret and Andrew Todd made the trek from the central NSW town of Murrami to protest the plan outside the minister's Sydney office on Thursday.
"Water buybacks aren't going to help achieve the plan," Mr Todd told AAP.
"It's going to have a damaging impact on rural communities who will have less water security for growing crops."
The Todds have been farming for more than a century and say the plan will smash crop production for staples such as barley, wheat and canola due to reduced access to water which would drive up food prices.
"It makes me concerned that there's not likely to be a future. If there's no water, we can't farm," Mr Todd said.
Another farmer who protested in a skeleton costume and mask said the minister's actions were a "politically driven initiative" that made no sense to the environment and would critically impact the ability to produce food.
"It'll rip the guts out of farming and manufacturing," she told AAP.
She estimated staple products including rice and milk could double in price if the buybacks were implemented.
Former Productivity Commission chair Peter Harris will lead the review, which will report back to the government by January and is aimed at ensuring the Inspector-General has the requisite powers.
Mr Harris has previously led the Victorian government's sustainability and environment departments.
Ms Plibersek said Australia's "most precious resource" must be managed appropriately.
"This independent review will provide recommendations to government on any changes required to ensure the Inspector-General can effectively monitor basin states, and hold them to account, if more water is extracted from our rivers than is allowed," she said in a statement.
"Mr Harris brings with him a wealth of experience in the public sector and has previously led on large-scale reviews, including the Sydney Airport Demand Management Scheme in 2021."
Ms Plibersek declared her commitment to delivering the Murray-Darling Basin Plan in full and restoring trust and transparency across the basin.
The new plan became necessary because the old one wasn't on track to hit 2024 water recovery targets.
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