The green light for a joint venture to explore for uranium near Alice Springs is a test for the federal government, the Australian Greens say.

The Northern Territory government last week granted a licence to Cameco Australia and Paladin Energy to explore the Angela and Pamela prospects 25km south of Alice Springs.

"We shouldn't be mining uranium at all, but putting one in the water catchment of a major regional town borders on insanity," West Australian Greens Senator Scott Ludlam said.

"This is the first test of the Rudd government and the Environment Minister Peter Garrett in particular as to exactly how they plan on handling this industry."

Before entering parliament Mr Garrett was a well-known anti-uranium campaigner both as head of the Australian Conservation Foundation and lead singer of rock band Midnight Oil.

The Angela and Pamela uranium sites are estimated to contain more than 12,000 tonnes of uranium oxide worth up to $2.5 billion.

Exploratory drilling is expected to start at Angela in 2009 when further regulatory approvals are finalised.

Cameco and Paladin won the right to explore the two sites in February.