The man, known only as Father F for legal reasons, is alleged to have abused at least six altar boys while working as a priest in a number of parishes across the state.
A NSW Police spokeswoman confirmed that a formal investigation had been launched.
"The NSW Police Force can confirm Strike Force Glenroe has been formed to review all relevant material," she said. "However, police are unable to comment further on this matter at this time."
The NSW Premier, Barry O'Farrell, said he hoped a separate "independent inquiry" into the allegations, announced by the church yesterday, would co-operate with police.
"I would urge the Catholic church to do what appears to have been lacking in last investigations, which is to link with police," he said.