Sacked ministers Phil Heatley and Kate Wilkinson have been attending their last Cabinet meeting in the Beehive on Wednesday.
In a reshuffle on Tuesday promoted the party's youngest MPs, Simon Bridges and Nikki Kaye, and reinstated Nick Smith, who will be Minister of Housing and of Conservation.
Ms Kaye, the Auckland Central MP, will become Minister for Food Safety, Youth Affairs and Civil Defence and Associate Education Minister. Simon Bridges will be Minister of Energy and Resources and of Labour.
The third new minister is National's senior whip Michael Woodhouse, who will serve outside the Cabinet as Immigration and Veterans Affairs' Minister, as well as Associate Transport Minister.
Mr Key dropped Mr Heatley from the housing portfolio and Kate Wilkinson from conservation.
The Prime Minister told Radio New Zealand's Morning Report programme he wants to encourage all sorts of new ideas and demonstrate to the National caucus that he will give people opportunities to move up.
Mr Key said he would not characterise dumping Mr Heatley and Ms Wilkinson as sacking them for not performing in their jobs, but that from time to time fresh energy and ideas are needed.
The ministers sacked in the reshuffle say they will stay on as National Party MPs and concentrate on their electorates.
Mr Heatley said he he believes he has performed well and is disappointed, but understands Mr Key has to refresh the team. He said he will now focus on his work as MP for Whangarei.
Labour leader David Shearer said the Government wanted to show it was doing something on housing by demoting Mr Heatley but doubts Dr Smith will bring any new solutions.
Mana Party leader Hone Harawira said Mr Heatley's policies made it harder for poor people to get into affordable housing and he hopes new minister will listen to people who are suffering while living in substandard homes.