"We need to rejoin the world. We can't live here in a hermit kingdom."
Prime Minister Scott Morrison later said the quarantine exemption would only apply to Australian citizens and permanent residents, not temporary visa holders.
"In the first instance, it will be for Australians, Australian residents and their families," he said.
Scott Morrison blocks quarantine-free travel for some visa holders
"We'll see how that goes and then we'll move to the other priorities, which I've already set out as being skilled migration, as well as students to Australia.
"Then we'll move on to the challenge of dealing with international visitors to Australia. So, everything all in good time. We're not rushing into this. We're taking it carefully, step by step."
NSW is the first state in the country to announce it will open up to people from overseas and scrap quarantine.
But the move could also mean other states delay the resumption of free domestic travel even further.
The majority of states have blocked NSW travellers and many are considering home quarantine options for international travellers.
A spokesperson for the Queensland State Government said it was "yet to be fully briefed on details surrounding New South Wales' quarantine decisions."
"The safety of Queenslanders remains the government's highest priority."
Queensland's Chief Health Officer Jeannette Young has already flagged border settings with NSW will be reviewed after the announcement.
"There's just been an enormous change this morning that I haven't been able to get my head around," she told reporters on Friday.
"So I need to go and work out what that change means, and it's not just a change that will impact on NSW, opening the borders to NSW then leads to a flow on to every other state.
"So, I just have to recalibrate my thinking that I've been coming to over the last few weeks."
The chief health officer, who will finish up her term at the end of the month, could not say whether the border travel restrictions would be tightened.
"Let me see it please, let me go through it all, I've seen so far is a very brief text message," Dr Young said.
"I need to have a bit more information than that, to work out what should be done."
Mr Perrottet conceded people in NSW will be able to travel overseas before they can travel to some states.
"People in NSW will be flying to Bali before Broome ... (but) we need to rejoin the world," he said.
But the premier denied the decision would make it harder for people in NSW to be reunited with interstate family for Christmas.
In fact, NSW will help facilitate holiday season reunions, by helping overseas Australians from other states return home.
"If we can play a role in that, I'm very passionate about doing that," he said.
"Returning Australians will naturally be the first cab off the rank.
"Those from other states who want to come back, come through Sydney.
"Have a great time here before you go home and spend up big and help out small businesses."
Sydney resident Chris Goringe and his family will be among those travelling overseas to reunite with family.
They booked their flights over the summer before today's announcement that confirmed New South Wales residents would be able to travel overseas without an exemption.
All members of the family will be fully vaccinated when they go.
He told SBS News he wasn't anticipating the sudden change to quarantine arrangements.
"We'd actually booked our flights to return eight days before the school term starts again so that the kids would be able to do the full seven-day quarantine at home before returning to school," he said.
"I guess it means that we get to do some stuff in Australia in that last week of the school holidays and catch up with some friends here."
It's been three years since they were able to see their family, missing out on important moments.
"We haven't been able to be at my grandfather's 100th birthday was last year and then sadly his funeral a couple of months later. I missed my father's 80th as well," Mr Goringe said.
"They're all things which we would have loved to have been out of course."
The federal government's ability to verify the vaccination status of people jabbed overseas will also play a role in who gets to take advantage of the border opening first.
"We will require the Commonwealth, like they do with visas, to ensure that a person is fully vaccinated," Tourism and Jobs Minister Stuart Ayres said.
"There's no doubt that the Commonwealth will be able to do that with some countries faster than others and they'll also be able to do that in conjunction with many airlines faster than others.
"But we are not delineating between countries. We are delineating between vaccination status."
- With AAP