The start of quarantine-free travel between the nations comes as a relief to families who have been separated by the Covid pandemic - as well as to struggling tourist operators.
Prime Minister Jacinda Ardern said health officials believed the risk of the virus being transmitted from Australia is low and that travel is now safe.
Both countries have been hailed as success stories after stamping out the spread of the virus, with fewer than 1,000 deaths from the virus between them.
"The bubble will give our economic recovery a boost and represents a world-leading arrangement of safely opening up international travel while continuing to pursue a strategy of elimination and keeping the virus out," Ms Ardern said.
Australia had previously allowed New Zealanders to arrive without going into quarantine but New Zealand had taken a strict approach to international travel, requiring arrivals from Australia to spend two weeks in quarantine upon arrival.
Ms Ardern cautioned that the travel bubble, in force from April 19, comes with a warning: Flyer beware.
"People will need to plan for the possibility of having travel disrupted if there is an outbreak," she cautioned.
It means travellers could temporarily be stranded in either country or be required to quarantine.
New Zealand's strict border restrictions will remain in place for elsewhere, with no plans to ease rules further.
The announcement comes ahead of the New Zealand ski season and was welcome news for many tourist towns, including the ski resort of Queenstown.
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Mal Price, co-owner of The Cow restaurant in Queenstown, said the number of customers was down by about 80% this year.
"Hallelujah. Business will be back," he said. "Every business will have hope now that they can survive. It really has been dire."
He said there were thousands of Australians who owned holiday homes in the area who were desperate to visit after missing the ski season last year.