Women will be able to serve in any role in the military, including with the special forces, within five years.
Defence Minister Stephen Smith said Cabinet formally signed off on the change, which will lift all gender-based restrictions on military roles, last night. The service chiefs, including Chief of Defence Force General David Hurley, supported the decision.
"People will be able to serve, whether it is behind a desk in Russell or on the frontline in Afghanistan, on the basis of their ability and nothing else,'' he said.
Currently, about 93 per cent of roles are open to women, although the remaining 7 per cent - which largely focus on close quarters combat - are only open for men. About 17 per cent of the military's jobs are within this 7 per cent of roles, including mine disposal divers, air force defence guards and infantry and artillery frontline positions.
"If a woman is capable of doing the entrance program for the SAS or for commandos then they will be in it," Mr Smith said.
Mr Smith said there would be no "diminution of standards" and men and women would have to meet physical and psychological benchmarks to be able to fight on the frontline.
"There will be a staged implementation program that will see these restrictions removed over a maximum period of five years."
Australia will be the fourth nation - after Canada, New Zealand and Israel - to lift the restrictions.
Mr Smith said it was "logical extension of a very strongly held view in Australian society that all of us are equal irrespective of our backgrounds and irrespective of our sex".
There would be no quotas - official or otherwise - on the number of women in the previously excluded roles, nor would anyone be forced into these roles.
"There is no compulsion here for women to seek these tasks. It is entirely up to the individual women to choose. We then have to make sure that we have the test and training right, and the criteria: does an individual have the right physical, psychological and mental attributes to do that job, irrespective of sex. This is a significant and major cultural change,'' he said.
"This is not conscription. We are not making it compulsory. It will be entirely a matter for the men and women of the Defence Force, the men and women of our services, to put their name forward for a particular role. If they are up to the task, they will be able to perform it.''
Defence Personnel Minister Warren Snowdon said the Defence Science and Technology Organisation and University of Wollongong were determining the physical and psychological requirements for performing the roles.
People who met these requirements would be allowed to perform these frontline roles, regardless of their gender.
He said women already performed many roles on the front line, but this would open up potentially any job in the military to them.
"Women can operate [unmanned aerial vehicles], surface to air missiles and ground based air defence systems,'' he said.
"There are many roles open to women [on the front line in Afghanistan] ... What we will do now is open up these other trades so that women can have any job, as long as they [are suitable].''
The change will also effectively open up senior leadership positions to women. Currently, only soldiers with experience in combat roles on operations are generally considered for the military's top roles, such as Chief of Defence Force and as service chiefs. Women were effectively excluded from these positions because they could not get the necessary experience.
Mr Smith said this would change.
"Your role and career will be determined on your ability not sex,'' he said.
As at 1 August 2011, 335 women were serving on overseas operations, representing more than 10 per cent of the total deployed force.
The change will also allow Australia to remove a reservation placed on its ratification of the United Nations Convention on the Elimination of All Forms of Discrimination against Women, Mr Smith said.
It would also mean an end to the Defence Force's exemption from Australia's Sex Discrimination Act.
Opposition defence spokesman David Johnston backed the decision, as long as the current physical and psychological standards were maintained.
The Returned and Services League national president Rear Admiral Ken Doolan (retired) did not object to the change.
"It's a matter of using the capabilities that exist within the Australian Defence Force. This is not something new,'' he said.
However, Australia Defence Association executive director Neil James he hoped the detail of how the military would "get around some of the bio-mechanical aspects will follow".
"We think it's a bit of a pity that the vague language used in the announcement makes it out that women aren't already in combat which we think is demeaning to all the women currently serving in combat jobs in the ADF," he said.
"We reiterate our firm stance that the pursuit of absolute gender equality in the defence force must not come at the price of killing more women or of disproportionate injuries and casualties."
The association, in a lengthy statement on its website, says it has long championed female participation in the military, but that it is a complex issue that was frequently misunderstood.
The association says that once trained and qualified, "female military personnel should be allowed to undertake any military task where the current government policy limitation is due solely to physicality, rather than bio-mechanics, and where female personnel can meet the physicality standards needed".
"We support female personnel also being employed in any situation where technology, training or other means can effectively render bio-mechanical differences gender neutral so that overall operational capability is not affected,'' it says.
"In combat roles that incur additional risks for female personnel due to their gender (such as disproportionate casualties, more disabling injuries generally or sexual assault if captured), we support the right of female personnel to choose whether to accept such extra risks or not. However, we believe that the exercise of such choice needs careful monitoring to ensure it is truly free and reasonable in the circumstances - and that it does not incur unintended, inequitable or unfair results for such females in practice."
Sex Discrimination Commissioner Elizabeth Broderick welcomed the announcement, saying women would get equal opportunity in their work in the military.
"It means that women who aspire to work in a combat position will now be able to compete for those positions on the basis of merit and ability, rather than being excluded simply because of their gender," she said.