A new report from the Justice Reform Initiative says incarceration rates in the region are four times the Australian average for adults - and five times higher for children.
Prisoner numbers have grown by more than 30 per cent over the past decade, with the number of Aboriginal and Torres Strait Islander adults in prison rising by 34 per cent.
Indigenous people are significantly over-represented, accounting for 85 per cent of all inmates despite making up only 26 per cent of the NT population.
Almost three-quarters of people in prison have been locked up before, and 35 per cent are being held while unsentenced.
Children on remand regularly account for more than 80 per cent of all young people in custody, the report says.
Justice Reform Initiative executive director Mindy Sotiri said there was a clear need for greater investment in policies and programs to break the cycles of disadvantage which keep bringing people back to prison, at enormous cost to taxpayers.
"The evidence is clear - prison does not reduce the likelihood of reoffending," Dr Sotiri said.
"It entrenches existing disadvantage and increases the likelihood of ongoing criminal justice system involvement, often over generations."
Aboriginal and Torres Strait Islander populations have suffered the brunt of this failed policy, reflecting and reproducing systemic disadvantage, she said.
The report found taxpayers bankroll NT prisons by more than $146.6 million each year, with $122,496 required to keep each adult in jail.
The territory government spent more than $73m on youth detention last year, with the cost for each child put at $3852 a day.
Dr Sotiri said while there was no single fix to reduce prison numbers, there were options like abolishing mandatory sentencing and increasing the age of criminal responsibility to 14.
Reforms areas outside the justice system include addressing homelessness, improving community connection and facilitating access to services and support for mental health, cognitive impairment and drugs and alcohol.
Dr Sotiri said "tough on crime" rhetoric did not make the community safer, nor did the overuse of imprisonment.
"Governments around the world are acknowledging jailing is failing and changing their approach," she said.
"It's time for the NT to invest in people, not prisons, and do the hard work to tackle the underlying social issues that funnel many disadvantaged people into the criminal justice system."
Greens senator Lidia Thorpe, meanwhile, has called on the federal government to implement recommendations from the Royal Commission into Aboriginal Deaths in Custody.
"So show us some good faith, Albo, Prime Minister Albanese, and just implement those recommendations," Senator Thorpe said on Friday.
More than 500 Indigenous deaths have occurred in custody since the end of the 1991 royal commission.
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