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4 year oldDaniel Prude died in March after officers put him in a "spit hood", designed to protect police from detainees' saliva.
Footage of the incident was released on Wednesday, sparking days of protests.
Mayor Lovely Warren announced a series of changes to policing in "the coming weeks, months and years".
Seven police officers have been suspended over the incident. On Saturday, New York Attorney General Letitia James announced a grand jury would be formed to investigate the 41-year-old's death.
Mr Prude's death came two months before that of George Floyd, whose killing while in police custody sparked global outrage and demonstrations against police brutality and racism.
Though she did not provide specifics, Ms Warren said the crisis intervention team and its budget would move from the police department to the youth and recreation services department.
Mr Prude suffered from mental health issues, and Ms Warren addressed that aspect.
"We had a human being in a need of help, in need of compassion. In that moment, we had an opportunity to protect him," the mayor said at a news conference on Sunday.
"We have to own the fact that in the moment, we did not do that."
Both Ms Warren and police chief La'Ron Singletary, who was also at Sunday's news conference, vowed to stay in charge and reform the police, despite calls for the pair to resign.
"I am committed to doing what's necessary... And I know the chief is committed to doing what's necessary, to better serve our citizens and our community," the mayor said.
Police said around 1,000 protesters marched through Rochester on Sunday night. There were no arrests.
Mr Prude's brother, Joe, said he called the police on 23 March as Daniel was showing acute mental health problems. When officers arrived, he had been running naked through the streets.
In body camera footage obtained from the police by Mr Prude's family, he can be seen lying on the ground as officers restrain him. While sitting on the road, he becomes agitated, alternately asking for money or a gun.
He began spitting on the street, but does not appear to offer any physical resistance, according to the footage. An officer says Mr Prude told them he had Covid-19, and they place the spit hood on him.
One officer can be seen pressing down on Mr Prude's head with both hands, saying "stop spitting". Mr Prude stops moving and goes quiet, and officers note he feels cold.
Paramedics are called and Mr Prude is taken to hospital. His family took him off life support a week later.
The medical examiner ruled his death as a homicide caused by "complications of asphyxia in the setting of physical restraint", with intoxication by the drug PCP, a contributing factor.
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