In many cases the response to victims and their families was indifferent, negligent, dismissive or even hostile, commissioner John Sackar said.
The inquiry examined unsolved killings of LGBTQI people from between 1970 and 2010 that may have been hate crimes.
A final report, released on Thursday after 18 months of hearings and investigation, recommended police undergo mandatory training about the LGBTQI community and possible investigative bias.
Justice Sackar said it was confronting for all those involved to delve into the suspected homicides of 32 people, including many deaths that were "lonely and terrifying".
They included the deaths of former AC/DC manager Crispin Dye, US mathematician Scott Johnson, newsreader Ross Warren and retired schoolteacher William Allen.
"Each homicide was suspected of being motivated, at least in part, by hatred for a person simply because of their identity," Justice Sackar said.
"It was - and is - confronting to face the reality that, despite all efforts, many of these deaths remain unsolved."
Of the deaths investigated, the inquiry found LGBTQI bias was a likely factor in 25 cases.
Families of many of those who died were crucial in pushing for further investigations into the deaths of their loved-ones.
The inquiry recommended that every NSW unsolved homicide case spanning a 40-year period starting from 1970 should also be reviewed to identify cases that can be solved with forensic breakthroughs.
It also looked at whether police bias and indifference to attacks on gay people could have affected how the cases were investigated.
"In many cases, the immediate effect of violence was compounded by responses from the NSWPF, and from some of its members, who were indifferent, negligent, dismissive or hostile," Justice Sackar said.
The inquiry report made several recommendations about NSW Police unsolved homicide operations, including calling for a review of the team's practices, procedures and resources.
Hearings revealed poor record-keeping practices by police with multiple examples of crucial evidence being lost, destroyed or misplaced over the years.
"The process of obtaining investigative files and other material from (NSW Police) was not straightforward," Justice Sackar said.
"In addition, I consider that the response of (police) to the inquiry was, at times, defensive and unhelpful."
The inquiry found NSW Police had failed in its responsibility to properly investigate cases of historical gay and transgender hate crime, undermining the confidence of LGBTQI communities in the criminal justice system more broadly.
Police now face the task of rebuilding the community's trust, Justice Sackar said.
NSW Police said in a statement the organisation recognised past inadequacies from the outset and was committed to evolving its culture and practices.
Commissioner Karen Webb said police had made efforts since the 1990s to reassess and improve the way they responded to the concerns of the LGBTQI community.
"While I cannot undo what has occurred previously, I give you my commitment today that (we are) determined to uphold the policies, education and training now entrenched in the practices of modern policing which did not exist 30 years ago," she said.
Premier Chris Minns said the government would take time to consider the report and its recommendations.
Attorney-General Michael Daley said the inquiry had shed light on some of the darkest events in the state's history and reopened wounds for many.
"We hope that in a small way this process will have provided some level of closure and healing," he said.
Lifeline 13 11 14
Fullstop Australia 1800 385 578
13°C