In a joint announcement, the federal government and NT government said they are stripping the Tangentyere Council of control over the notorious camps.
The council was set up in the 1970s to give the indigenous community some tenure over the land and to provide basic services.
The federal government said it will contribute $20 million to provide essential services to the camps in and around the town, and build hostel-style accommodation for large numbers of visitors flowing in from remote areas.
The NT government will put in $10 million.
"Collectivism has failed around the world and it's failed here," Indigenous Affairs Minister Mal Brough said.
"I think the problems in town camps have been because we've had a collective system," he said.
"We require indigenous communities to do something that we don't require anyone else to do."
The camps, he said, have become "second-grade squalor" that urgently need basic services like power, water, sewerage, roads, rubbish collection, and rates in line with other parts of Alice Springs.
The move will pave the way for indigenous private ownership of land in those areas, Mr Brough said.
The NT government last year established a task force to look into problems at the town camps, well-known for their high crime rates and poor living conditions.
The hostel-style accommodation planned by the governments will be targeted at Aboriginal people coming in from outlying and remote areas and staying for short periods.
Currently, these visitors are accommodated in the poorly-resourced town camps in overflowing households.
Half of the federal government's funding commitment to address the problems -- $10 million -- will come from the Aboriginal Benefit Account (ABA).
The ABA holds mining payments collected on behalf of indigenous communities as compensation for mining on their land.
Earlier this week, the federal government announced it would hand over about 100 demountable buildings from the mothballed Woomera immigration detention centre to the Alice Springs indigenous community.