The Tim Bergling Foundation will raise money for a variety of causes including mental health and suicide prevention, according to Rolling Stone magazine.
Tim Bergling was the Swedish superstar's real name.
Avicii, 28, was found dead last year in Muscat, Oman. He was 28.
The Swedish star had been open about his struggles and took a break from touring in 2016.
"Creating music is what makes me happy and I have gotten to know so many great people in my days of touring, seen so many amazing places and created endless of good memories," he posted on social media at the time.
"The decision I made might seem odd to some but everyone is different and for me this was the right one."
After his death, his family talked about his difficulties.
"Our beloved Tim was a seeker, a fragile artistic soul searching for answers to existential questions," the statement obtained by CNN read. "An over-achieving perfectionist who traveled and worked hard at a pace that led to extreme stress. When he stopped touring, he wanted to find a balance in life to be happy and be able to do what he loved most -- music."
The statement continued: "He really struggled with thoughts about Meaning, Life, Happiness. He could not go on any longer. He wanted to find peace. Tim was not made for the business machine he found himself in; he was a sensitive guy who loved his fans but shunned the spotlight. Tim, you will forever be loved and sadly missed. The person you were and your music will keep your memory alive."
The family said the new foundation will also focus on issues including climate and nature conservation.
"Tim wanted to make a difference -- starting a foundation in his name is our way to honor his memory and continue to act in his spirit," the family said in a statement.
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