Australia became known for its liberal legislation: free compulsory education, protected trade unionism with industrial conciliation and arbitration, the secret ballot, women's suffrage, maternity allowances, and sickness and old-age pensions.

Australia fought alongside Britain in World War I, notably with the Australia and New Zealand Army Corps (ANZAC) in the Dardanelles campaign (1915). Participation in World War II brought Australia closer to the United States. Parliamentary power in the second half of the 20th century shifted between three political parties: the Australian Labour Party, the Liberal Party, and the National Party. Australia relaxed its discriminatory immigration laws in the 1960s and 1970s, which favored Northern Europeans. Thereafter, about 40% of its immigrants came from Asia, diversifying a population that was predominantly of English and Irish heritage. In March 1996 the opposition Liberal Party–National Party coalition easily won the national elections, removing the Labour Party after 13 years in power. Pressure from the new, conservative One Nation Party threatened to reduce the gains made by Aborigines and to limit immigration. An Aboriginal movement had grown in the 1960s that gained full citizenship and improved education for the country's poorest socioeconomic group. In Sept. 1999, Australia led the international peacekeeping force sent to restore order in East Timor, Indonesia. Pro-Indonesian militias had begun massacring civilians following a U.N.-sponsored referendum that overwhelmingly called for East Timor's independence.

In Nov. 1999, Australia's 11.6 million voters rejected a referendum that would have ended Australia's formal allegiance to the British Crown. The referendum would have replaced the British governor-general with an Australian president chosen by Parliament. Although the vast majority of Australians do not consider themselves monarchists, they rejected the referendum because it did not provide for direct, popular elections but gave Parliament the power to select the president. Sydney hosted the 2000 Summer Olympic games from Sept. 15–Oct.1, 2000.