The Department of Local Government and Regional Development was created on 1 July 2001 in response to recommendations from the Machinery of Government Taskforce. The Department combines the roles of the former Department of Local Government and the regional functions carried out by the former Department of Commerce and Trade. In addition, the Westlink function of the former Department of Contract and Management Services was also included in the new Department.

The Department of Local Government and Regional Development sought to increase the capacity of communities to development good government, economic growth and social well being. To this end, the Department had three main business outputs: developing policy advice to Government; supporting regional and local communities; and compliance, monitoring and advisory services.