The number of offenders in prison and the use of short sentences would both be cut if the Welsh government had law-and-order powers, it says.
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It claims mental health programmes and support for drug users would replace jail sentences "where appropriate".
Labour wants a Welsh justice system, but Conservatives have rejected the idea.
The Welsh Tories accused Labour ministers of "pandering" to nationalists.
Plaid Cymru, who are in a co-operation agreement with the Welsh government, said the only way to create a fairer justice system was to press for full devolution.
But last week's Welsh Tory conference heard no more powers would be devolved to the Senedd under Boris Johnson.
The UK government said the costs of creating a legal jurisdiction in Wales would not be "justifiable".
In 2019, the Thomas Commission, led by a former Lord Chief Justice, recommended the devolution of the justice system.
Despite opposition in Westminster, a Welsh government report on Tuesday says the move is "inevitable - so we have a duty to prepare for it".
Explaining the "core components" of how it would work, ministers say they would "give highest priority to tackling the national crisis of male violence against women, and the shockingly low levels of convictions for rape and sexual assault".
Short prison sentences are "counterproductive" and their use would be "significantly reduced", it says.