Abstract: The capability approach has been recently used in Australian Indigenous policy formation. What is curious about this use is how the approach has been used in some instances to justify current paternalistic and instructive policies for Indigenous Australians including behavioural conditions to welfare payments and income management—policy apparatuses aimed to create individual responsibility and to "re-engineer social norms of Indigenous people." This interpretation of the capability approach is at odds with the writings of capability scholars. To examine this tension, this paper firstly reviews and clarifies the important concepts of freedom, agency and pluralism according to capability approach scholars, in particular Amartya Sen. The contestation between the writings of Sen and commentators of Indigenous policy is then addressed paying particular attention to three areas; deficit discourse, individual responsibility and the ends and means of policy. An examination of how the capability approach can be used to analyse welfare to work and activation strategies within wider Australian Indigenous policy is then undertaken, followed by some broader reflections on the discursive environments in which misinterpretations of the capability approach could continue to take place.