The overhaul will take effect in Term 4 for NSW students undertaking the Higher School Certificate, and aims to protect the integrity of the state's formal examination process.
Education Minister Prue Car vowed the state was leading the nation in responding to AI in schools by mitigating risks to year 12 studies.
Senior years were prioritised, although teachers and parents remain concerned about AI's impact across all years of schooling, Ms Car said.
"Teachers tell me that it's proving very difficult to try and ascertain the use of AI in take-home assessments," she told reporters on Tuesday.
The government ordered a review in August into the use of AI in schools, which would examine the impact on cognitive development and how schools can best assess students' abilities in the modern age.
Half of a NSW student's final High School Certificate result is based on school-based assessment, some of which is completed outside the classroom.
On Tuesday, the government confirmed the new rules would limit schools to one take-home assessment task worth no more than 15 per cent.
Schools will be able to use a range of assessment types appropriate to each course, including exams, oral tasks, and process diaries, based on the nature of the subject.
"It's 2026, and we have to move to respond to AI because it's going to have massive impacts on the way children learn, the way their assessments are marked," Ms Car said.
"At the end of the day, we have to protect the HSC and the integrity of the internationally recognised credential that it is."
Research published by education consultancy Learning First in May 2026 found that half of surveyed NSW secondary teachers reported students using AI for schoolwork.
Nearly 3400 NSW teachers were interviewed for the study, with half concerned they do not know how to prevent AI-related plagiarism or cheating.
NSW Education Standards Authority chief executive Paul Martin said AI may offer students a short-cut to complex school work, but it bypassed the opportunity to build knowledge and learning.
"These immediate measures being put in place are an important starting point while we consider additional ways to support schools who share our objective of protecting student learning," he said.