Edward Daly, 81, expressed admiration for a religious order caring for thousands of troubled children amid the violence and "abominable" poverty of 1960s Northern Ireland.
The Sisters of Nazareth have apologised for "shocking and harrowing" physical, sexual and emotional abuse and neglect at two residential homes in Londonderry.
Bishop Daly said in 36 years of ministry he only heard one complaint, from a woman separated from her brothers as a child and sent from a home to Australia, but had no involvement in running the centres.
He said: "They were doing work that needed to be done, that nobody else was doing."
The treatment of young people, orphaned or taken away from their unmarried mothers, in houses run by nuns, brothers or the state is a key concern of an investigation chaired by retired High Court judge Sir Anthony Hart which is being held in Banbridge, Co Down, and was ordered by the powersharing devolved government at Stormont.
It is considering cases between 1922, the foundation of Northern Ireland, and 1995.
The nuns ran two homes in the area, Termonbacca and Nazareth House.
Bishop Daly was still a priest when he famously intervened while British paratroopers shot dead 13 innocent civil rights protesters in Londonderry on Bloody Sunday in January 1972.
He waved his bloodied white handkerchief as he tried to lead one victim to safety. The photograph became one of the images of the conflict.
Two years later he was ordained bishop.
One wonders what would have happened to those kids had the sisters not been there.
He told the inquiry that Derry in 1969 - amid Catholic protests for civil rights - was a place of great suffering.
The former bishop said there was violence every day except Christmas Day for 18 months.
He added: "It was extraordinary, the shootings, the murders, bombs, intimidation, imprisonment, internment.
"It was a culture shock, I had never before experienced poverty of that nature, housing was such abominable standard, overcrowding and all the attendant things that went with that, it was quite shocking frankly."
Earlier evidence to the inquiry said two sisters were left looking after up to 70 children and the home was under-funded and overcrowded.
Bishop Daly said: "We all took the sisters for granted. The sisters were there, we knew the children were being cared for.
"Perhaps people in the community, leaders in the community like myself, took them for granted."
He added: "We are all responsible for not knowing but I was surprised that so few sisters were involved and they looked after 5,000 children."
Between 1957 and 1993 he received one complaint about the sisters, from a former resident sent to Australia under the child migration scheme seeking news of her brother via a "heartbreaking" letter.
He worked as a farm labourer in Co Monaghan in the Irish Republic and died shortly before the letter was received.
The former bishop said: "She was devastated by it."
Responsibility for running the order lay in Hammersmith in London, answerable directly to Rome rather than his diocese, the senior cleric said.
"I had complete faith in the sisters and I had no reason to believe otherwise than that they were doing excellent work in looking after these children," he said
He added: "We were very limited in funding, we had a huge number of commitments.
"We had no wish to involve ourselves in the running or supervision of the homes."
Alleged victims have claimed they were forced to eat their own vomit and punished for bedwetting.
Earlier during Tuesday's hearing, a senior nun, speaking on behalf of the congregation, said the evidence was "shocking and harrowing".
Sister Brenda McCall said: "We are a human group, a human organisation and we had people that were champions to the cause and we had people that were a bit weaker and all I can say is we had some wonderful, heroic, I would say inspirational sisters."
She said the congregation accepted that sisters, older boys and lay people physically assaulted children.
She added bullying would have occurred and acknowledged that by the 1970s boys were being told "peer experimentation" and sexual abuse was wrong.
Sister Brenda accepted there must have been a degree of knowledge of the problem among the nuns to prompt them to organise such a talk.
The order has already apologised for physical and sexual abuse and Sister Brenda said that extended to those subjected to emotional harm or neglect.