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This paper provides an analysis of data from the 1994 National Aboriginal and Torres Strait Islander Survey (NATSIS) and all the censuses from 1981 to 1996 to highlight the role of the Community Development Employment Projects (CDEP) scheme in augmenting Indigenous labour supply. CDEP is a publicly funded employment program, mainly located in rural and remote areas of Australia, and designed to address labour market disadvantage and a lack of local employment opportunities. It provides part time work on community projects and caters for Indigenous people with poor employment prospects, especially youth, those with low skills, and people who have difficulty speaking English. The analysis reveals that the CDEP scheme enhances Indigenous labour force participation although the scheme hides a high level of underemployment among Indigenous Australians, with CDEP scheme workers about twice as likely to be underemployed as other Indigenous workers. In order to employ more productive workers for longer hours, more flexibility in the scheme’s guidelines, rules and funding would be required. One of the main factors underlying the significant increase in the Indigenous participation rates relative to those for other Australians is a significant interaction between CDEP and postsecondary qualifications. In general, the CDEP scheme appears to overcome established barriers to Indigenous labour force participation by providing work managed by, and on behalf of, the local community.