There are concerns ChatGPT is helping students cheat on assessments because of the program's ability to compose human-like writing in response to any prompt or instruction.
NSW is the first Australian state or territory to restrict access to the application on student devices or while students are using their personal device on the school network.
The changes will start later this month when students go back to school, the NSW education department's acting deputy secretary said.
"This will be in place while we review how to safely and appropriately use this emerging technology in the classroom," Megan Kelly told AAP in a statement.
"The department will also be providing further guidance to teachers on our robust assessment practices in place to ensure all students play by the rules."
In the US, New York City's education department earlier this month implemented a similar ban on ChatGPT.
Australian universities are also addressing the emergence of artificial intelligence applications, with the Group of Eight universities moving to more in-person supervision and increased paper assessments this year.
Meanwhile, thousands of NSW students will go back to refurbished classrooms later this month, as the State Government completes maintenance and minor capital works.
More than $1.3 billion has been put towards the improvements this financial year as part of the Government's school building program.
"We're delivering upgrades at public schools across NSW, ensuring every child can learn in the highest quality education facilities," Education Minister Sarah Mitchell said in a statement.