The NSW Teachers Federation endorsed a new agreement with the government at a union meeting on Saturday morning, following months of negotiations.
All 95,000 teachers across the state will be paid more from October 9 - a move hoped to address chronic staff shortages.
The starting salary for NSW teachers will increase from $75,791 to $85,000, while those at the top of the pay scale will go from $113,042 a year to $122,100.
Negotiations will continue over what happens to teacher salaries following the first year increase, after the government scrapped an earlier offer of 2.5 per cent annually over three years which the union rejected.
NSW education minister Prue Car said it was always the intention of the government to negotiate a new deal for teachers.
"For too long, teachers in NSW have been undervalued, overworked and underpaid," Ms Car said.
"I am so proud that today we are able to give teachers the pay rise they so urgently deserve.
"Pay is a function of respect and teaching is one of the most, if not the most, valuable role in our society."
Full details on how the government will afford to pay teachers more will be outlined in the state budget on 19 September, Ms Car said.
With the budget already strained by massive debt, Ms Car said a standard public service pay increase of 4.5 per cent had already been factored in, and the remainder would come from savings within the Department of Education on things like staff travel and hiring consultants.
"We will unashamedly be redirecting money from the bureaucracy into the thing that makes a difference for kids and that is the teacher in the classroom," Ms Car said.
Teachers will move from a five, to a seven step pay scale, with all levels to receive a percentage-based increase in pay packets from the start of term four.
School counsellors will also receive a pay increase under the deal in recognition of their qualifications and acute staff shortages in the discipline.
Those at the upper end of the counsellor pay grade will receive as much as head teachers, while some, including senior psychologists will be paid in line with school principals.
NSW Teachers Federation acting president Henry Rajendra, said shortages of counsellors in schools mean students aren't getting the support they need.
"As we all know the last number of years, particularly during the pandemic and the lockdowns, (have had an) impact on our students mental well being," Mr Rajendra said.
"With this agreement you will see school counsellors elevated to a significantly higher salary that gives us a great opportunity to recruit the school counsellors that we need."
Mr Rajendra the ultimate beneficiaries of the "historic" change would be children.
"It will mean the rebuilding of our profession, the stability of teacher numbers across the state, and hopefully the end of this crippling teacher shortage that has so damaged the learning opportunities for so many kids," he said.
HOW TEACHER SALARIES COMPARE ACROSS THE COUNTRY
* NSW (From October 9) - Graduate - $85,000 Top Bracket - $122,100
* Victoria - $76,484 - $113,456
* Queensland - $81,628 - $108,359
* Western Australia - $78,397 - $113,568
* South Australia - $74,769 - $103,129
* Tasmania - $78,074 - $111,536
* ACT - $79,108 - $117,538
* Northern Territory (From October) - $84,191 - $120,742
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