MDMA may be known as the "party" drug ecstasy and magic mushrooms associated with hippies, but the psychedelic substances now offer hope to Australians living with severe mental illness.

Melbourne psychiatrist Eli Kotler is among a handful of Australian doctors able to prescribe psychedelic medication in limited circumstances, and he's the first to admit they have an almost "mystical" appeal.

In what some consider a controversial treatment, they work by switching off particular parts of the brain which allows a patient to process overwhelming aspects of their lives and confront issues head-on, he said.

"It can be a traditional psychiatric model to try and repress the difficult feelings associated with the trauma like fear, whereas a psychedelic assisted therapy approach is to actually face the trauma," Dr Kotler told AAP.

"To sit with it, to feel it again, to literally walk through it in your mind again to the point where it's not so scary for you anymore."

In January he began prescribing psilocybin, an ingredient in magic mushrooms, and MDMA for treatment-resistant depression and post-traumatic stress disorder.

Mind Medicine Australia, which counts Dr Kotler among its board members, believes his work is among the first instances in five decades where psychedelics are used legally in a clinic setting, outside of research.

The medication is administered during a day procedure at a hospital, with patients spending up to eight hours with a psychiatrist and another qualified medical professional.

"People are very excited about it and to be honest I'm also excited about it, but it has to be tempered with reality," Dr Kotler said.

"I feel like I need to sort of temper that excitement a little bit because it's not going to help everyone."

Psychiatrist and Black Dog Institute senior research fellow Adam Bayes has "mixed feelings" about their use.

He is following the rollout closely, and says stage three clinical trials have been conducted on MDMA but there is "limited" research on psilocybin.

Dr Bayes is also concerned people with severe mental health issues, who are unemployed or unable to work, will not be able to access the private treatment because the drugs are not available through Medicare, throwing up broader questions to mental health workers.

"It's going to be a long time before these treatments would be available in the public sector so I think that's my big concern, the equity issues," he said.

The price of treatment varies with much of that coming down to medical professionals' time, but it can cost tens of thousands of dollars with therapy needed between a maximum of three sessions.

Local and international startups are keen to get into the industry following the surprise move by Australia's medicines regulator to reclass the drugs as Schedule 8 controlled substances in 2023, Dr Bayes said.

The Therapeutic Goods Administration has approved four applications for MDMA and psilocybin, including from ASX-listed drug developer Emyria.

Availability is also limited with five licensed importers of MDMA and eight of psilocybin, the federal health department said.

Strict guidelines govern how the medications are used with patient safety the top priority, according to the Royal Australian and New Zealand College of Psychiatrists.

President Elizabeth Moore said the college supports investment in clinical trials to gather more evidence of the benefits and risks, with psychedelic assisted therapy requiring "careful clinical judgment".

"While early evidence around the use of psilocybin and MDMA is promising, our approach has always been cautious because of limited research in this area," Dr Moore said.

Dr Kotler said while some may have doubts about the new treatment, he is in turn critical of some other standard psychiatric treatments.

The way psychedelics work fits in with how he understands mental illness and human suffering, with one of the biggest dangers being patients assuming it will "fix" them, Dr Kotler argued.

"This is about hopefully changing the focus of the mental health system from a system that focuses on psychiatric diagnoses to a system that focuses on humans," he said.