No, to me it sounds off. I would prefer the preposition 'in' here, instead of 'on', but if I had my way, I would rephrase the sentence: Customary law was developed by Aboriginal people and is based on [the notion/concept of] Dreamtime.
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SausagesCustomary law was developed by Aboriginal people and has its basis in [the] Dreamtime.It should be 'Aborigines'.
or,
Customary law was developed by Aboriginal people and has [the] Dreamtime as its basis.