NSW Premier Mike Baird has unveiled plans to relocate the Powerhouse Museum to a former David Jones car-park site on the banks of the Parramatta River.

The Powerhouse move means Western Sydney will be home to a major cultural institution for the first time.

"Locating the Powerhouse at Parramatta will ensure Western Sydney has a new, world-class institution that will be a major drawcard for local and international visitors," said Baird.

The site was chosen for its proximity to public transport, and pedestrian access.

Construction of the new museum will begin in 2018, and should be complete by 2022. A 52-storey tower will sit alongside the museum.

"The new museum will showcase more of the Powerhouse's exhibits - the size of the collection on display is set to increase by at least 40%," said NSW Minister for the Arts, Troy Grant.

The museum and adjoining development are expected to employ 3,000 people once complete.

The move was flagged by the Blair government last year, and has sparked fierce opposition. Actress Cate Blanchett and former NSW Premier Bob Carr were among 10,000 people to sign a petition opposing the plan. An open letter criticising the project was signed by 170 prominent Sydney figures.

While Baird hasn't outlined plans for the original Ultimo site, he has said he expects "something great".

Some parties have raised concerns about the possible impact of floodwaters at The Parramatta River site.