With one in five people in Australia suffering a mental illness, the country's peak scientific body, the CSIRO have announced they will work with local med-tech companies to improve existing psychedelic treatments and develop new ones.

The research will focus on psychedelics such as methylenedioxymethamphetamine - known as MDMA - and psilocybin - a compound derived from certain species of mushrooms - to determine if they can be used alongside psychotherapy for mental health-related illnesses.

CSIRO's Adjunct Professor Peter Duggan said the institution was well-placed to contribute to the emerging area of research, which could lead to "life-changing advancements" in mental health with the research already producing "promising results".

University of Tasmania Associate Professor of Psychology Luke Johnson - who is researching treatments for people with chronic pain using ketamine - said expanding pre-clinical trials into psychedelics had potential.

Professor Johnson said while both psilocybin and MDMA contain hallucinogenic properties, they could also increase neural plasticity indicating a potential use for the drugs in psychotherapy treatments which, unlike antidepressant use, took place over a matter of weeks - not months and years.

"Some of the ways we think both psilocybin and MDMA work when they're combined with psychotherapy is that they increase emotional empathy, they increase insightfulness, and they sort of increase acceptance to therapy, so people are more willing, and seem to get more out of therapy - and that seems to be related to their psychedelic effects," he said.

"In addition, there's research from animal studies that show that these drugs do affect plasticity in the brain, and we know that's an important part of memory formation, both for changing memories and developing new memories - you need the brain to be plastic - and these drugs seem to increase that ability to be plastic, so they may directly affect memory as well."

With MDMA and psilocybin commonly associated with recreational drug-use the full therapeutic potential of psychedelics are yet to be unlocked - an issue Professor Johnson hoped his and the CSIRO's research could change.

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"One of the things in neuropsychiatry with depression, anxiety and PTSD is there's not really been, or there's not been the development of new pharmaceutical compounds for decades," he said.

"We're really needing new drugs for people who are treatment-resistant, who are not getting relief from those drugs - there's a lot of people who need new treatments."

Beyond clinical applications, Professor Johnson also said psychedelics had the potential to create new industries at home in Tasmania.

"I think we can see in relation to Tasmania, there are potentially good development opportunities there for industry," he said.

"Already we have an opium industry in Tasmania and we have a medical marijuana industry developing in Australia, so there's potential in the future for industries around psychedelics."