Events such as the tall ships regatta and a firework display tonight, along with Invasion Day protests from 10am, are expected to draw thousands in Sydney.
The beaches are also likely to attract a massive crowd.
NSW recorded 29 COVID-19-linked deaths and 18,512 new infections yesterday, on the two-year anniversary of Australia’s first COVID-19 case.
Hospitalisations also rose yesterday.
Premier Dominic Perrottet announced restrictions on hospitality venues and mandatory mask wearing would be extended until late February in a bid to protect students returning to school and move toward resuming elective surgeries.
Masks will be mandatory indoors except for residences, while density limits of and bans on singing and dancing will continue to be enforced.
These include density limits of two square metres in hospitality venues, bans on singing and dancing and mask mandates indoors.
People are encouraged to keep working from home and mingling is not recommended.
Originally set to expire on January 27, they will now be in place until at least February 28.
Mr Perrottet said these measures will help elective surgery return by mid-February.