The classification makes it illegal for anyone to be a member of all Hezbollah entities, which "pose a real and credible" threat to Australia.
Australia has listed all of Hezbollah, a Lebanese Shia political party, as a "terrorist organisation", extending an existing ban on armed units to the entire movement.
The decision regarding the group which wields considerable power over Lebanon came on Wednesday.
Home Affairs Minister Karen Andrews said that the Iran-backed Shia group "continues to threaten terrorist attacks and provide support to terrorist organisations" and poses a "real" and "credible" threat to Australia.
From now on, membership of the entire organisation or providing funding for it will be prohibited in Australia, which has a large Lebanese community.
No reason was given for the timing of Canberra's decision, which comes as Lebanon reels from spiralling political and economic crises.
Australia on Wednesday also classified The Base, the white supremacist group formed in 2018, as terrorist organisations.
Matthew Levitt, a former US counter-terrorism financing official now with the Washington Institute for Near East policy, told AFP the move was "long overdue."
In June, Levitt had testified to the Australian parliament that the previous designation banning armed units to some parts of the group was "insufficient". "Hezbollah is structured and operates as a singular organisation," he added.
"In recent years a laundry list of Hezbollah terrorist plots and illicit financial schemes have involved Australian citizens and/or activities on Australian soil," he said.
The move may play well domestically for Australia's conservative government, ahead of its elections expected next year.
Before 2018 polls, Prime Minister Scott Morrison made the surprise move of recognising west Jerusalem as Israel's capital, helping secure votes in a battleground Sydney seat with a sizeable Jewish community. Israel's embassy in Canberra welcomed the decision.
"There is no division between the political and the military wings of the terror organisation Hezbollah, and this acknowledgement is essential to combating the enduring threat of terrorism," the embassy said.
Hezbollah defies easy definition, acting as part political party, part armed group and part provider of basic services to Lebanon's Shia community.
It has claimed responsibility for multiple rocket attacks on Israel and is the only side that has to date refused to disarm since the country's devastating civil war ended in 1990.