Previously, compensation for death or injury was commonly capped at an amount set in the 1920s in a currency that no longer exists.
The nearly six million Australians who travel overseas each year will now be covered by the Montreal Convention, the government says.
”Now each of them can do so confident that in the unlikely event that the unthinkable happens, they or their families will be financially compensated,” Transport Minister Anthony Albanese said.
Under the convention, airlines can be required to compensate passengers for all proven damages. The compensation cap has been removed entirely in the case of death or injury.
Fairer and timelier compensation will be paid for lost baggage and freight, and losses caused by extensive delays, Mr Albanese said.
Nations such as the United States, Britain, Japan, China, New Zealand and most European Union countries had ratified the convention by 2004.
The previous Howard government had baulked at ratifying the agreement, Mr Albanese said.