More than 30,000 hectares near Lithgow has been declared a nature reserve, with the NSW government to establish world-class eco-tourism facilities in the area.
The Gardens of Stone reserve was conceived in 1932 by Myles Dunphy, "the spiritual grandfather of the conservation movement in Australia".
Its declaration as a protected area nine decades later is the culmination of possibly the longest conservation campaign in the state's history, advocates say.
"It has been a long time coming but it was definitely worth the wait," Nature Conservation Council chief executive Chris Gambian said.
"This is a very significant addition to the state's conservation reserve system and one of the conservation movement's proudest days," he said.
Mr. Gambian said, "It shows what people can achieve when they work together and stay focused and optimistic in the face of many setbacks."
The area is home to internationally significant rock formations and more than 80 threatened plant and animal species, including the giant dragonfly.
"The landscape is dotted with thousands of pagodas, with gorges, canyons, and waterways weaving between them," said Convenor of the Gardens of Stone Alliance Wilson Harris.
He said, "There are valleys with lush rainforest, high-country woodlands, and critically endangered wetlands that provide crucial habitat for countless threatened species."
The promise of $50 million for tourism infrastructure and roads will bolster the local economy and create jobs, but will also unlock a new ecotourism hub for the state, Mr Gambian said.
"This part of the Blue Mountains has been largely unexplored by tourists - both those from Sydney and internationally - but the potential is enormous," he said.
Images: Gardens of Stone Facebook