Teenagers will be targeted at high school in an effort to get to people with mental illnesses when they have their first episode.
The Howard Government also plans to launch a "cannabis hotline" as part of its mental health package in response to increasing claims of evidence linking drug use to psychosis, particularly among the young.
Parliamentary Secretary Christopher Pyne said the phone line would be widely promoted to provide information about the risks of smoking cannabis and the dangers posed by other drugs.
Many experts say there is now little doubt cannabis causes not only psychotic illnesses such as schizophrenia, but also depression and anxiety disorders, particularly when smoked by young people.
"We will fund public information and education activities targeting the general population as well as particular groups such as clinicians and professionals and frontline workers in indigenous communities," Mr Pyne said.
University of Sydney psychiatry professor Ian Hickie said the campaign had to be carefully constructed not to alienate those people it was targeting.
"There's definitely an issue of making younger people more aware of these direct links that a lot of the so-called common or party drugs are in fact dangerous for your mental health," he said.
Speaking about the Government's move to provide increased early mental health intervention, John Howard said an extra 8500 places would be created in the Youth Pathways program to help young people with mental illness get through school.
"Recognising that mental health problems often first occur in the 15 to 24-year age group, there will be a new range of supports for young people," the Prime Minister said.
"The Government will also provide funding to help parents and school communities identify and respond to children at risk of mental illness."
NSW Institute of Psychiatry director Louise Newman said she was pleased to see the focus on young people, but it was vital to look at even younger age groups.
"Common mental health problems start even before children turn 12," Dr Newman said. "It's still important to look at the younger age groups where problems actually start. In many cases there are earlier signs."
Mr Pyne said the program, which at the moment focused on helping children with drug and alcohol problems to get through school, would be overhauled.
"It's going to be refocused with a mental health aspect. A drugs-alcohol-mental health aspect, because most of the behavioural problems the program is seeking to help with are often related to drugs and alcohol and mental health," Mr Pyne said.
The Government has also promised to employ a number of frontline indigenous workers in Aboriginal communities.