More of the nearly $100 billion paid annually in federal contracts could stay onshore as Australian companies get a leg-up on foreign competition.
Finance Minister Katy Gallagher says the value of contracts only available to local companies will be increased for the first time in more than two decades.
For non-construction contracts, the Australian-only tender threshold will be lifted from $80,000 to $125,000 from November 17.
The construction contract threshold will remain at $7.5 million.
"We wanted to maximise the opportunities that come for Australian businesses ... drive better bang for our buck," Senator Gallagher said on Wednesday.
More than 83,000 contracts worth $99.58 billion were published on the government's tendering database in 2023/24, the finance department says.
To be invited to tender in the new threshold, a company must register as an Australian business and its principal place of business must be on Australian shores.
It must also have at least 50 per cent local ownership or be traded principally on the ASX and be based in Australia for tax purposes.
Homegrown software company TechnologyOne applauded the move, saying it should make a real difference to small businesses.
""The changes announced today again send a message to the public service that they are expected to back Australia when they are spending taxpayers' money," CEO Ed Chung said.
The central database allowing businesses to advertise their services for government contracts will also be updated, with suppliers able to control which information is shared to give them the best chance of winning government money.
From July, all businesses will be able to register for tenders and publicise their characteristics to help them win contracts, including whether they're First Nations-owned or a small or medium-sized enterprise.
Female-owned businesses will also be encouraged to take more of the limelight, with a new publicly searchable register for women-owned businesses tendering for government contracts.
From 2026/27, the government will begin reporting on how many contracts are given to female-led companies.
"We want to be a good purchaser across the ecosystem but also allow businesses to really promote what they have to provide to the Commonwealth," Senator Gallagher said.