The Coalition plans to cap the removal of children for the next four years before DOCS would be asked to slash numbers by more than 20 per cent.
Under the plan, most of the more than 16,000 NSW children in foster care would be looked after by charities and the private sector.
Policy documents show the handover to the non-government sector would begin immediately if the Coalition wins the election.
The policy revelation came as the Coalition yesterday pledged a $120 million fighting fund for preventive health initiatives a day after The Daily Telegraph's People's Parliament unanimously voted for health policies to focus on prevention measures.
Liberal Community Services spokeswoman Pru Goward said that, despite fewer removals, children would be safer.
She said DOCS was now so overloaded it was failing.
Parents would be asked to enter contracts and prove they had combated problems such as drug and alcohol abuse and domestic violence for a period of up to two years before their children could be returned.
A family preservation model would be adopted, with a focus on early intervention.
Out-of-home care is threatening to swallow up to $900 million of the DOCS budget within three years, leaving little money to investigate cases of children at risk, Ms Goward said.
In the policy document, the Coalition said there were so many children in foster care, some were not safe or properly cared for, while the bill placed "significant costs on taxpayers".
Ms Goward said the money saved would be spent on early intervention programs and family services. "This is what Justice Wood [in a special commission of inquiry in 2008] recommended and all the research is there. Children in non-government sector out-of-home care have fewer placements, are more stable and have better outcomes at school," Ms Goward said.
"The only difference is, they didn't do it and we're going to do it."
The State Government agreed to implement the recommendations but the handover to the non government sector has been delayed.
Ms Goward claimed it was to satisfy unions.
Originally published as Coalition plan for kids in care