Rimutaka prison is set to open the country's first dementia unit later this year.
The Corrections Department confirmed the "high dependency unit" will be created for some of the 120 inmates aged over 65 who struggle with daily tasks, such as showering themselves.
Corrections National Health Manager, Bronwyn Donaldson, told Radio New Zealand's Morning Report she hoped the unit would be open by the year's end.
"The high dependency unit won't be, automatically at 65 - you're in. We're looking at starting it with a maximum of 20 prisoners, it's most likely to be the people who cannot do those activities of daily living themselves ... the people who struggle with showering, incontinence."
Mary More, the lawyer for one of New Zealand's oldest jailed paedophiles, said the unit was long overdue.
"The Department of Corrections needs to recognise that the courts are sending more and more people to prison for longer ... and we are going to have an aging prison population."
Her client, Donald Liddington, 75, is serving preventive detention for raping young girls in the 1980s and 1990s. He is considered too ill for prison but too dangerous for the community.
The Mental Health Foundation's Chief Executive, Judi Clements, said she was surprised the service did not already exist.
"For some time there's been some concern about the prison service generally and how it can respond to the mental health needs of the inmates.
"The fact that there's an aging prison population means it's something that the corrections service needs to plan for."