Prospective citizens – migrants who have been in Australia for four years – will have to make a commitment to understand commonly-held local values such as respect for the law, religious and individual freedoms and equal rights for men and women.
Monday's announcement comes amid a long-running debate about immigration in Australia.
It follows a recent crackdown on illegal immigrants and concerns that extremist Islamic views may be gaining a foothold in the country.
More than 20 per cent of Australians were born overseas.