Mr Straw says the unit will give offenders training to enable them to "go straight" on release
A project to prevent young offenders committing further crimes has been opened by Justice Secretary Jack Straw and London Mayor Boris Johnson.
The unit at Feltham Young Offenders Institution, west London, will also help 15 to 17-year-olds find a job and somewhere to live upon their release.
Mr Johnson said the £2.5m scheme made sense "economically and socially".
During the visit Mr Straw praised Mr Johnson for helping a woman who was being attacked in Camden on Monday.
The Heron Unit is the UK's first dedicated resettlement unit for young offenders who have shown a commitment to changing their criminal pasts. The two-year pilot project aims to help around 300 offenders.
Mr Johnson said: "Some may argue that we are throwing good money at bad kids. But they are wrong.
"The rate of re-offending for youngsters leaving custody stands at a shocking 75%.
"It makes sense both economically and socially to break young people out of the cycle of crime."
The project is part of the government's £100m national Youth Crime Action Plan, launched in July 2008.
Mr Straw said the unit would "get young offenders out of the cycle of crime".
"By dealing with the reasons they offend while they're inside, we will keep making the community safer on the outside," he said.
But critics said the funds would have been better spent preventing young people from getting into the criminal justice system in the first place.
Camilla Batmanghelidjh, founder of south London-based support charity Kids Company, said: "Boris Johnson has had to make some difficult choices into where to intervene in young people's lives.
"This choice in terms of investing money in a young offenders institute risks repeating the current mistake which is that we only really help young people when they get into the criminal justice system because that is where all the money is."
Professor John Pitts, a specialist in gangs at the University of Bedfordshire, believed the Heron Unit would be a success, but was not sure it would target those people most at risk of becoming involved in gangs.
He said: "Although we start with an initial concern for youngsters involved in crime, we're ending up with a project for those young people who are most likely to grow out of crime."
Mr Straw praised Mr Johnson for helping environmental campaigner Franny Armstrong when she was surrounded and pushed by a group of girls in Camden, north London, on Monday.
"I congratulate Boris. I have done it myself four times and you have a millisecond to decide. But in his case and mine we both decided to intervene," Mr Straw said.
"It's very important that the streets are held by the law-abiding people."
Mr Johnson said: "I'm sure Jack would have done exactly the same thing. It's a slight mitigation of my heroism that the assailants turned out to be 12-year-old girls.
"But let's face the facts, 20, 30 or 40 years ago there would not have been girls behaving like that on the streets. That's where our society is going wrong."