It comes after revelations about the late TV presenter reawakened concerns about his visits to Haut de la Garenne.
Jimmy Savile
Four years ago, the home was the subject of a police investigation over allegations that it was at the centre of a paedophile ring. Lenny Harper, the officer who led the probe, said last month that while Savile's name had come up there was not enough evidence to charge him.
Steptoe and Son actor Wilfrid Brambell, who died in 1985, has also been linked to claims of abuse involving the home.
Plans for the inquiry, which will look into claims of child abuse over several decades on Jersey, have been put forward by the island's government and will now be put to the vote in its parliament.
It will question victims and staff members as well as looking at how the government dealt with concerns about abuse, and whether allegations were dealt with impartially and free from political interference.
Ian Gorst, the chief minister, said: "We believe the inquiry we are proposing will provide a trusted forum where witnesses can share their experiences, where a healing process can begin and through which we can develop a shared understanding of the lessons which need to be learned from our past."
It is the tenth investigation to be set up following revelations about Savile's alleged abuse at the BBC and at hospitals, and further claims about abuse at care homes in North Wales said to involve a senior Tory.
The Prime Minister has come under pressure to launch an over-arching inquiry into all the claims but today Andrew Lansley, Leader of the House of Commons, told the BBC's World at One that such an "all-embracing" probe might be too slow.
Meanwhile, a former social services director who led a 1990s inquiry into abuse at care homes in north Wales said that it was not told of allegations involving a senior Tory.
John Jillings said those named by victims had included staff members from the home but not well-known public figures or others who had taken them off to hotels, as has been suggested.
Mr Jillings, 78, said he could not recall claims about a senior Tory.
He said: "I am sure that that would have lodged in my mind and we would have wanted to investigate it had we known about it."
Steve Messham, who claims that he was abused by the senior Tory, disputed Mr Jillings's comments, saying he would have mentioned the allegations when he spoke to the inquiry.
