TEA-tree oil could be the answer to controlling sheep lice and blow flies that cause flystrike, according to a study.

Research funded by the Rural Industries Research and Development Corporation's tea-tree oil program found significant potential for use of tea-tree oil formulations as an anti-parasitic drug for sheep.

Researcher Dr Peter James, of the Queensland Alliance for Agriculture and Food Innovation, said a 1 per cent tea-tree oil formulation killed 100 per cent of lice in tests.

"We knew that tea-tree oil was very effective in treating lice in a lab environment, but we were particularly pleased by how well it worked in the field and the low level of (tea-tree oil) formulation that was required for the lice," he said.

Dipping heavily louse-infected sheep in a tea-tree oil solution two weeks after shearing killed the lice for up to 20 weeks; jetting sheep with six months' wool with a tea-tree oil formulation reduced numbers by up to 94 per cent compared with control treatments.

Dr James also noted that tea-tree oil was effective in repelling sheep blowfly maggots.

"There is also some evidence to suggest tea-tree oil would be effective as a treatment for wounds caused by mulesing, tail docking or any wound likely to be struck," he said.