After months of back and forth, the Commonwealth brokered a deal with the NSW government to lift its contribution from 22.5 per cent of the Schooling Resource Standard - which estimates how much total public funding a school requires to meet students' needs - to 25 per cent by 2034.
This means an extra $4.8 billion in federal money will be used to fully fund public schools, which will help more than 780,000 children.
With NSW on board, Queensland remains the lone holdout but discussions are ongoing.
Prime Minister Anthony Albanese said the funding boost wasn't a "blank check".
"We want to make sure that it's tied to real reforms like evidence based teaching practices, phonics and numeracy checks, catch up, tutoring, more mental health support," he told reporters in Sydney on Tuesday.
NSW Premier Chris Minns said the funding would make a "massive difference" and help reduce big classrooms.
"What this money means is that we can have intense small groups so that no child is left behind," he said.
The federal government currently chips in 20 per cent, while the states are required to fund public schools at 75 per cent, leaving a five per cent gap which governments have been trying to close.
In 2024, the federal government reached deals with Western Australian and Tasmania to boost its contribution to 22.5 per cent, leaving the states to increase their funding to 77.5 per cent.
But every other state held out for a bigger slice of the pie, with Victoria and South Australia coming to a deal in January after the Commonwealth offered to lift its share to 25 per cent - foreshadowing the NSW deal.
The latest three agreements require the states to stop using an "accounting trick" that allowed them to claim four per cent of public school funding for indirect school costs such as capital depreciation.
NSW also agreed to tie its funding to reforms like numeracy checks in early years, wellbeing initiatives and reforms to improve the retention and attraction of teachers.
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