The news was announced at a surprise media de-briefing at 9.25pm Tuesday held by Prime Minister Jacinda Arden and Director of General Health Dr Ashley Bloomfield.
The family tested positive for Covid-19 after swabs carried out on Monday.
Dr Bloomfield confirmed the family had no history of overseas travel therefor the first community transmission in 102 days.
The source of the virus is unknown.
The rest of the country will move into level two as of 12 midday, Wednesday, August 12.
Auckland will be moving to level three for a period of three days, until midnight on Friday August 14.
Close contacts of the family have all been tested and are required to isolate for 14 days. Casual contacts are in self-isolation until the return of the Covid-19 swab test.
Arden said there was no immediate link to any isolation facilities.
She said a strong and rapid health response was the best long-term economic response.
"While we have worked extremely hard to avoid this scenario, we have planned and prepared for it."
Auckland is set to move into level three as of midday tomorrow, 12 August.
The city's residents must stay home, aside from leaving to access essential services.
This means social distancing will apply, and a ban on mass gatherings over 100.
"I know this information will be very difficult to receive," Ardern said.
Dr Bloomfield encouraged the public to stay vigilant.
"If you are offered a test, please take it," he said.
"This is a tricky virus. Please consider wearing a mask in spaces or places where it is hard to remain socially distant."
"I know this information will be very difficult to receive," Ardern said.
Dr Bloomfield said these cases are a wake-up call to the public.
"We have done this before, and we can and will do it again."
