The early questions focused on the economy, with Ms Keneally citing the state's solid growth, rising housing approvals and declining jobless rate.
Mr O'Farrell highlighted recent Coalition policy measures to create 100,000 new jobs, build a new convention centre in Sydney, boost services, including the creation of local district hospital boards, and offer new infrastructure.
He chided Ms Keneally for the failed CBD Metro rail project, saying she had allowed the state to waste $500 million.
"I wanted to be certain we had value for money for the taxpayer... we made the right decision to cancel that project," Ms Keneally said.
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Ms Keneally pointed to the state's top line triple-A credit rating, saying new infrastructure and transport initiatives would not increase state debt.
Mr O'Farrell said the construction of the north-west rail line would be a Coalition priority if it won government, and criticised the cost blow-out on the infrastructure, which is now not expected to be completed until 2024.
"Let's level with the people of NSW," he said. "Let's ensure they have the full information."
Ms Keneally said NSW Labor was making significant investment in road networks, but was going to be prudent about its spending.
"We are not going to promise things we can't afford," she said.
"We are only going to promise what we can afford."
Ms Keneally also said some projects in the government's metropolitan transport plan could be brought forward, if funding became available.
The government was determined to relieve congestion on Sydney's roads, she said.
Mr O'Farrell said through its Infrastructure NSW plan, the Coalition would focus on projects, such as the north west and south west rail links, the metro and the M2 link road.
Its overall plan would be put to parliament to ensure bipartisan agreement and to give certainty to the people of NSW.
Moving on to health, Ms Keneally said more needed to be done otherwise the rising costs of healthcare would bankrupt the system by the middle of this century.
"We absolutely can and we absolutely must (do more)," she said.
"Not to do so will bankrupt the entire system." She also said NSW nurses were among the highest paid in the nation.
"If we are going to achieve better health outcomes ... we need to resolve the issues of bed block ... we are not just talking about a hospital system, we are talking about a health system", she said.
She added that NSW still had a number of unresolved issues regarding the federal government's proposed healthcare reforms, as did other states and territories.
Asked how she could defend her leadership of a party that had a image problem with voters, Ms Keneally said she was not a shrinking violet and was prepared to take tough decisions.
"I am about change, I am about positive practical change," she said, asking voters to make their judgements on the basis of achievements.
Mr O'Farrell said he understood the lesson provided by last weekend's SA state election, which saw the re-election of the Rann Labor government despite its poor showing in the polls.
"We are putting good candidates in the field ... we have the plans to restore the opportunities that have been lost through Labor's mismanagement," he said. In her closing statement for the debate, Ms Keneally thanked Mr O'Farrell for "an engaging hour".
"This is a crucial moment for us, because as we come out of the global financial crisis, NSW is now back in front and who would have imagined as we stared into the economic downturn we would be in the position we are in today," she said.
"For the next 12 months we do have an opportunity to do some great things together and I am optimistic about what we will achieve together.
"We are about positive and practical change." Mr O'Farrell challenged Ms Keneally to more debates over the next year, involving the public.
Friday's debate was hosted by The Daily Telegraph newspaper with questions put forward by its journalists.
Mr O'Farrell said if voters were asked about the state, they believed NSW "was broken and can't be fixed". "It's time to turn talk into solutions, I am an optimist ... I actually believe in NSW and the future of this state," he said.
"It's a great place to live, to work and to raise a family.
"I remember the day we won the Olympics and I think that can-do spirit is still alive across this state and we can be number one again and we have the team."
Mr O'Farrell said the Coalition had good local candidates in place, a plan to fix the state and 30 policies to back up that plan.
He said he wanted a constructive election campaign and an end to "Labor's politics of fear and smear".
"I know the people of this state want the opportunity to change NSW for the better and together with their support I know we can make NSW number one again," he said.
Labor trails the Coalition in the polls, however, Ms Keneally is by far the most popular of the two leaders.
According to a Galaxy Poll published by News Ltd on Friday, she is now the nation's most popular political leader.
But two-thirds of voters would not re-elect her party at next year's state election, the poll found.
