A mental health program described as "one of the most innovative services ever funded" by the federal government is under threat after years of funding freezes.

In a major report released last week, the National Mental Health Commission has called for a huge expansion in the number of mental health nurses used in Australia, and an end to the freeze on funding for the Mental Health Nurse Incentive Programme.

Commissioner Ian Hickie, who heads the Brain and Mind Research Institute at the University of Sydney, said the nurse program was one of the most important that had ever been set up, but was struggling under years of funding uncertainty.

Fairfax can reveal that a multi-award winning mental health nurse program in south-west Sydney, the only service to provide bulk-billed services outside the hospitals in the area, has been forced to close after 10  years treating the most vulnerable people in the area.

The ROAM communities program used mental health nurse practitioners who were trained to dispense medication and psychologists to provide bulk-billing services in Campbelltown, which contains a number of very disadvantaged areas.

Despite winning a long list of awards for its services, and accolades from politicians and media outlets including Fairfax, it closed its doors in January.

"In the end we couldn't secure the funding to go on employing ourselves," says Toby Raeburn, ROAM's ex-founder, who now works at the University of Sydney.

"When I started out I was working two jobs... but you get a bit older and you've got a wife and kids and a mortgage and you just can't keep going year on year without security".

Mr Raeburn said after Labor first froze the funding in 2011 each year he and his colleagues had watched the budget with bated breath, but the freeze and a reliance on grants had eventually made it too difficult to continue.

"Some of our patients were pretty upset, and maybe a little bit angry, saying we were letting them down," he said. "But for others they just said 'this always happens, I'm used to it, these mental health people set up shop but then the money runs out and they go".

He estimated along with his own practice there were about 300 nurses using the Mental Health Nurse Incentive Programme, which helps tens of thousands of people nationwide.

"For the government it's a fairly small amount of money, but the difference it makes for a place like Campbelltown is really significant," he said. "These are people with really debilitating disorders such as bipolar, schizophrenia, major depression and post-traumatic stress disorder".

Professor Hickie said nurses working under the incentive program were some of the most dedicated and professional in the state, but it had struggled almost as soon as it began because of funding difficulties and a lack of support outside the hospital sector.

"These are people doing the hard work with people at great risk of self-harm … working with a really hard-end population in their homes and on the streets," he said.

He said these types of programs were exactly what the commission was talking about when it controversially recommended last week that the Commonwealth move $1 billion over the next four years out of psychiatric hospitals and into care.

"We're talking about a measly $200 million or so a year, and this is exactly the kind of issue we are talking about," he said. "This is one of the most innovative programs serving the most marginalised populations."