The government on Friday pledged Aus$1.77 billion (US$1.83 billion) to pump more than 450 billion litres of water into the ailing Murray-Darling River and help rejuvenate a crucial system supplying Australia's food bowl.
The river and its basin stretches thousands of kilometres from Queensland state to South Australia and crosses various climates, affecting the livelihood of millions of people, but it has been over-exploited for years.
It has also been seriously depleted by years of drought while suffering from increased salt concentrations due in part to low rainfall.
Prime Minister Julia Gillard called the cash injection a landmark step in the plan to return the river and its basin to health.
"The plan is a historic event for water reform in Australia and provides greater certainty for future water availability ensuring all those dependent on a sustainable river system can face the future with greater confidence," she said.
Gillard added that the additional water would benefit major wetlands across the basin and lakes in South Australia "and help ensure the system never again goes into a period of drought lacking the resilience it needs to survive".
By investing the cash in farm infrastructure and water-saving projects, the government hopes a combination of increased flows and better management will meet ecological goals without hurting basin towns.
Most of the money will be earmarked for making farms more water-efficient instead of buying back water from irrigators.
Up to Aus$200 million will be used to remove river constraints, such as low-lying bridges and undersized dam outlets, to help free the additional 450 billion litres for the environment.
Caroline Sullivan, an ecological and environmental economist at the Marine Ecology Research Centre at Southern Cross University in New South Wales, said it was welcome news.
She said the Murray-Darling was the only river system in Australia that "exhibited crisis-level exposure to the combined effects of pollution, water regulation, flood plain fragmentation and other threats".
"The decision to increase water allocation to support river integrity is an excellent signal to the people of Australia that our core ecosystems matter," she said.
"If we can steer water policy through the treacherous waters of competing uses in multifunctional systems, our efforts to achieve ecological, social and economic sustainability will be a more reachable goal."
The money will be made available over a decade starting in 2014.