EU leader Ursula von der Leyen and Australian Prime Minister Anthony Albanese revealed the accord during a ceremony in Canberra, the capital of Australia.
It is the newest trade agreement finalized by the EU as an effort to broaden trade while Europe encounters difficulties from the United States and China.
Albanese and von der Leyen likewise reached an agreement on a partnership for security and defense.
"Although the EU and Australia are geographically distant, our perspectives on global issues are closely aligned," stated European Commission President Ursula von der Leyen following her meeting with Prime Minister Anthony Albanese in Canberra.
"Through these evolving partnerships in security and defense, along with trade, we are coming even closer together."
Albanese described the agreement as a "crucial moment" for Australia.
Australia's third-largest two-way trading partner is the European Union, which is also its second-largest source of foreign investment.
The deal will eliminate more than 99 percent of tariffs on EU exports to Australia, as reported by AFP news agency, reducing duties for businesses by €1 billion ($1.16 billion) annually.
Tariffs in Australia will be eliminated immediately for wine, sparkling wine, fruits and vegetables, and chocolates, while cheeses will see a reduction over a period of three years.
European automakers will gain from Australia increasing the limit for its luxury car tax on electric vehicles, resulting in three-quarters of EVs now being exempt.
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Australia will reduce tariffs on imported critical minerals.
According to a European Commission press release, the agreement may result in a 33 percent rise in EU exports to Australia over the next ten years, particularly in daily goods, motor vehicles, and chemicals, which are expected to experience the most significant growth.
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Major obstacles to access the EU market for Australian beef were resolved to finalize the agreement.
The EU will establish two tariff rate quotas for beef, amounting to a total of 30,600 tons. This comprises 55 percent of grass-fed beef coming in duty-free, whereas 45 percent will arrive with a reduced duty of 7.5 percent.
Nonetheless, this will be implemented gradually over a span of five years to safeguard EU farmers.
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The domestic livestock sector initially sought 50,000 tons annually without tariffs, Australian media had earlier indicated.
The EU will allow a quota of 25,000 tons of Australian grass-fed sheep and goat meat phased over seven years.