The proposal to set up the academy was approved by a Cabinet meeting presided over by Chief Minister Sheila Dikshit.
"We are setting up the Children's Academy to provide the children all opportunities to hone their creative talent. It will expose them to various extra-curricular activities. The academy will go a long way in facilitating overall development of children," Dikshit said.
The Chief Minister will be the ex-officio chairperson of the academy.
The Academy will soon become functional, officials said.