In a first for the country, the ACT will hold a Reconciliation Day public holiday on 28 May 2018.
It comes after a bill to amend the Holidays Act passed by all parties in the ACT Legislative Assembly last week.
The introduction of the holiday marks the first time in Australia that an Aboriginal and Torres Strait Islander focused public holiday has been created.
The public holiday will be held each year on the first Monday on or after the 1967 Referendum anniversary date of 27 May, the start of Reconciliation Week.
It will replace Family and Community Day, which means this year's celebration on September 25 will be Canberra's last.
Co-chair of Reconciliation Australia, Professor Tom Calma, applauded the ACT saying the move is significant.
"The ACT always been very progressive community in social change and justice and this is the next step," Professor Calma told the Canberra Times.
Mr Calma hopes the public holiday will prompt a shift to celebrate multiculturalism as opposed to acknowledging Australia Day on January 26.
It comes after three Melbourne councils dumped Australia Day celebrations out of respect to the First Australians.
"It's got to be applauded celebrating reconciliation through a public holiday but there's a diversity thinking about January 26," Mr Calma said.
Jo Chivers is the Deputy Chair of the ACT Aboriginal and Torres Strait Islander Elected Body.
"It is very emotional in the sense that we're the first state or territory that has actually got a public holiday that is certainly quite significant to the Territory's Aboriginal and Torres Strait Islander people," she told ABC.
She hopes the holiday won't just mean another day off.
"We're hoping non-Indigenous community members will come out and celebrate in the spirit of reconciliation with Aboriginal and Torres Strait Islander people," she said.
"We want future events to be inclusive not just Aboriginal and Torres Strait Islander people, so in the next few months the elected body will be working quite closely with the ACT government and our Indigenous community to think about what those [events] might look like."
Aboriginal Affairs Minister Rachel Stephen-Smith said she looks forward to working with Aboriginal and Torres Strait Islander Canberrans and the wider community to consider how to best celebrate the first Reconciliation Day next year.
"Canberrans should be proud to be part of a community where we can all come together to recognise and celebrate the important place of Aboriginal and Torres Strait Islander culture and history in our city and nation," she said.