An overhaul of Victoria's mental health system has been enshrined in law, delivering a key recommendation of the state's historic royal commission into the sector.

The Mental Health and Wellbeing Bill is designed to support a system that is integrated, contemporary and adaptable, and replaces the Mental Health Act 2014.

It comes after a 2021 royal commission into the state's mental health system made 65 recommendations, with the Victorian government committing to implementing all of them.

"This historic milestone will make a profound change to the way we support Victorians for generations to come," mental health minister Gabrielle Williams said.

"This new act will transform the way we deliver treatment, care and support for Victorians with mental illness as we build a new more responsive and compassionate mental health system."

The act prioritises lived experience and underpins the expansion of the mental health workforce, supporting dedicated professionals.

People seeking care will have more involvement in decisions regarding their personal treatment and support.

The act will also incorporate a statement of recognition and acknowledgement of treaty process.

The Victorian Budget 2022/23 invested $1.3 billion in mental health and wellbeing, which includes $29.3 million for resources to support implementation of the new legislation.