In an address to parliament yesterday, Defence Minister Stephen Smith acknowledged that soldiers, sailors and air force personnel had suffered abuse, often by superiors under the excuse of toughening up recruits, since the 1950s.
An independent report earlier this year found 775 plausible allegations of sexual, physical and mental abuse within the armed forces since 1951.
"To those men and women in the Australian Defence Force [ADF] or the Department of Defence who have suffered sexual or other forms of abuse, on behalf of the government, I say sorry," Mr Smith said.
The issue flared up last year when a female defence academy cadet was unknowingly filmed having sex with a male colleague, and the footage broadcast on the internet to other cadets.
Australia's military commander, General David Hurley, also apologised to those affected by abuse.
An independent taskforce will now examine allegations and rule on compensation of up to A$50,000 (£32,500) for victims.