Gillian Triggs said the inquiry -- the second in a decade -- would review the impact of detention on the health, well-being and development of an estimated 1,000 children in mainland Australia and 100 in an offshore detention center in Nauru.
"These are children that, among other things, have been denied freedom of movement, many of whom are spending important developmental years of their lives living behind wire in highly stressful environments," Triggs said.
Most adult asylum-seekers are held on Christmas Island, an Australian territory in the Indian Ocean, and in offshore detention centers in Papua New Guinea and the tiny Micronesian island republic of Nauru.
The commission's first report in 2004, "A Last Resort? National Inquiry into Children in Immigration Detention," was completed when there were about 700 children in detention centers.
The report found mandatory detention of children was inconsistent with Australia's international human rights obligations and that detention for long periods created a high risk of serious mental harm.
Triggs said the new inquiry, expected to be finished by the end of the year, will seek to determine whether Australia is meeting its obligations under the United Nations Convention on the Rights of the Child 1989, to which Australia is a party.
Announcement of the inquiry is the opening of another battlefront for the government in its war with critics over how it is fighting people-smugglers.
Many of the asylum-seekers, on often unseaworthy vessels, have children with them, including babies.
The influx of thousands of asylum-seekers arriving annually by boat and their treatment is a highly emotional subject for many Australians. Boat-people policies were a major focus in the last national election and human rights groups have criticized the government for conditions in centers and the length of detention.
An investigative report in the Sydney Morning Herald in October said 1,500 asylum-seekers have died trying to reach Australia since 1989.
One asylum-seeker vessel was wrecked on rocks in high seas near the shore of Christmas Island in December 2010, killing 50 people. The disaster was filmed by media organizations and there were film clips showing people, including children, jumping into the churning sea amid bodies floating in the water.
Australia has been trying for more cooperation with its Asian neighbors, especially Indonesia and Malaysia, to stop the work of the people-smugglers before their vessels are launched.