Foreign investors will face tough national security checks designed to protect Australia's critical assets from falling into the wrong hands.
Treasurer Josh Frydenberg has released the first section of the draft laws, which will go to parliament later this year, as Australia's relations with China are already on the rocks.
The first section out for consultation deals with the definition of "national security business" and the second - to be released in September - will cover with other regulatory changes.
The changes mirror similar regimes introduced in the United States, United Kingdom, Japan and New Zealand.
The rules would apply to foreign bids for technology, telecommunications and energy companies, as well as small-scale defence and services firms.
No minimum dollar threshold will be needed to trigger the national security test.
The treasurer will have expanded powers to force the sale of assets or impose conditions after a deal is reached if national security is at risk.
Currently, private foreign investments under $275 million - or $1.2 billion for countries that have free trade agreements with Australia - are not screened.
Australia's foreign allies and state and territory leaders have been briefed on the reforms.
More than $13 billion of foreign investment in Australia last financial year came from China.
The US with $58 billion was the biggest source of investment, ahead of Canada, Singapore, Japan, with China in fifth place.
The Foreign Investment Review Board has more than 1000 conditional approvals on their books.
About 80 per cent of approvals last year had conditions attached.
As part of the reforms, the government is also streamlining approvals for non-sensitive businesses.
It is expected the laws will come into force from January 1.
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