In 1923, the State Government passed the Child Welfare Act, repealing and consolidating a variety of provisions that existed in legislation relating to the care and management of children under State protection. The Act was designed to place a much greater emphasis on children's health, welfare and rehabilitation.

The new Act dealt with juvenile offenders who had come through the Children's Courts up to the age of sixteen, or those between sixteen and eighteen on minor charges in the adult system. The distinction reflected the Government's recognition of the need for more lenient treatment of young people under State care, away from the harsh environment of the NSW criminal justice system. 'Under the new system, the Gosford Farm Home was classified as an Industrial School with the schooling component being controlled by the Department of Education.

Between 1923 and 1940, the living conditions and amenities at the centre gradually improved. An ongoing building program ensured that the boys continued to get building experience that could be used on their release, while at the same time upgrading their present conditions. In 1936, electric lighting and a hot water system were installed, which was followed in 1937 by a refrigeration service.

By the end of 1937, the centre comprised four dormitories, a recreation hall that catered for concerts and movies, a dining and kitchen block, a hospital, a bathing and sanitary block, as well as a variety of outbuildings including a dairy and accommodation for single and married staff.