People living with severe depression could soon have their lives transformed thanks to a promising new treatment in the form of a party drug.

A low-cost version of ketamine has been found to be effective for treatment-resistant depression, with a clinical trial for the first time testing the effectiveness of varying doses of the drug.

University of NSW professor and lead researcher Colleen Loo said one in five people entered remission and a third showed huge improvement in depression symptoms by the end of the trial.

"It is transformative," she said.

The drug works by rapidly promoting nerve cells in the brain to produce proteins that allow connections to be made with adjacent nerve cells, normalising activity in the networks involved with experiencing emotion.

Prof Loo said the treatment displayed immense benefits for people who have unsuccessfully tried other treatments.

"It's not a miracle cure. No treatment works for every single person but I would say the majority of people have significant benefit from this."

Trial participants received a flexible dosage, about half to one milligram of ketamine per kilogram they weighed which was eight to 10 times lower than what would be used in party settings.

University of Otago professor Paul Glue reiterated the study was cognisant of ketamine being an addictive party drug but said the trial did not find any cases of people having cravings for it.

The study excluded people with history of substance abuse.

While ketamine itself is affordable, costing about $5 for off-label usage in Australia, the researchers conceded potential cost barriers lie with associated healthcare.

Prof Loo said the costs come with being in a medically monitored context for a couple of hours for safety reasons which could reach $350 for patients.

"I don't kind of see this as something people do in their office or general clinics," she said.

"It does need to be a specialised treatment with people with particular expertise."

The use of ketamine would also be a last resort measure when all other treatments had failed.

The majority of patients would need to dose ketamine while the episode of depression was present, which can range from several months to years.

The breakthrough research has opened huge opportunities for research into other uses for the drug, including anxiety and social phobias.

"It's a very powerful treatment and done well, it's an amazing treatment which has been transformative for many people," Prof Loo said.