The six-month inquiry, which will start next year, will examine workplace safety, stigma and criminal activity within the industry.
It will be led by Reason Party MP and sex work advocate Fiona Patten, who believes the current legislation is simply not "fit for purpose".
The laws were written before the internet was commonplace and therefore don't recognise sex work is often advertised online or operates in an online environment.
They also fail to recognise that many people now work in the gig economy, Ms Patten said.
"It's not about legal or illegal brothels," she told reporters on Wednesday,
"But certainly the legislation, because it is so outdated, has made it very difficult for people to actually even comply with the law."
Consumer Affairs Minister Marlene Kairouz said the review was aimed at keeping sex workers safe.
Among the matters, Ms Patten will consider are massage parlours offering sex work services.
"As we've seen over the years, there's been a proliferation of massage parlours popping up all over the state, and unfortunately a lot of sex workers are operating outside the legal framework," she said.
