Islam, who turned his back on show business in 1977 when he became a Muslim convert, took a helicopter flight over some of the most devastated areas.
He said he had decided to briefly step back into the spotlight - recording a charity record titled Indian Ocean, and headlining a benefit concert in Jakarta on Monday - because of the scale of the calamity.
"When we heard, when we saw what had happened we were also moved and because I already run some charities looking after orphans we decided to come to Aceh as soon as possible," he said on arrival at Banda Aceh airport on Saturday.
Fantastic relief efforts
Islam praised "fantastic" relief efforts, but said more was needed to be done in the devoutly Muslim province, home to most of the 230,000 Indonesians presumed dead after the 26 December earthquake and tsunamis.
"It also needs to be continued so we just don't give [charity to] them in a flash for one month and then it's gone. This is going to be a long-term problem," he said.
Aceh was the worst hit by the
He said his presence in Indonesia would help draw attention to aid requirements and ensure help was sustained "as long as needed".
His helicopter touched down later on Saturday at Lam No, a town on the west coast of Indonesia's northern Sumatra island, 44km south of Banda Aceh.
Islam touched the heads of children who lined up with their mothers at a camp for the displaced to receive 50,000-rupiah ($5) bank notes from him.
"Have you seen anything like this in your country?" some of the children asked him. "No, not in Britain," Islam told them. "But the tsunami can happen anywhere."
The British singer said his Small Kindness charity was setting up a regional office in Indonesia and would work on projects "to keep families together" by helping children who had lost their parents in Aceh.
"We try to find other family members who would look after the orphans and then keep the family together in that way and then pay them subsistence every month," he said.
The charity, which works closely with the UN, has distributed nearly four million euros to needy families and for rehabilitation work in Iraq and the Balkans over the past five years, said his wife Fawzia Islam.