Allan Asher, who heads a government watchdog body, said official data indicated there was a problem.
There were more than 1,100 actual or threatened self-harm incidents in the past year, government figures show.
The UN has criticised Australia's policy of detaining all asylum seekers while their applications are processed.
Mr Asher said he had spent a week at the Christmas Island detention centre in June, and there had been 30 incidents of self-harm during that time.
"We then heard that in the first week in July there were 50 in all the places of detention and it just tells us there is something wrong and it needs to be looked at," he told ABC television.
Mr Asher said the inquiry would examine the root causes, and consider practical steps that can be taken to identify and manage those at risk of suicide and self-harm.
Continue reading the main story Irregular maritime arrivals (IMAs) in 2010: 134 boats carrying 6,535 peopleIMAs up to 19 April 2011: 16 boats carrying 921 peopleAs of 20 April 4,552 IMAs detained on the mainland, 1,748 on Christmas IslandSource: Australian Department of Immigration
His report is due by the end of the year.The immigration spokeswoman from the Australian Greens, Sarah Hanson-Young, said it would add weight to earlier assessments by the UN Human Rights High Commissioner and the Australian Human Rights Commission.
"We know the policy of mandatory detention, in place since 1992, has ruined many people, some of whom have taken their lives, harmed themselves and are still recovering from trauma years after being accepted as refugees," she said.
Earlier this week, Australian and Malaysian officials signed a controversial deal intended to stem the flow of asylum seekers travelling to Australia by boat.
The deal allows Australia to send 800 asylum seekers to Malaysia. In return, Australia will take 4,000 refugees from Malaysia over the next four years.
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