"This is a momentous and historic day for our two countries. It will change our countries for the better, it will change our region for the better, it will change our world for the better," Prime Minister Tony Abbott after the deal was inked.
"This agreement will give our nations unprecedented access to each other's markets."
Trade Minister Andrew Robb and visiting Chinese Commerce Minister Gao Hucheng formally signed the document in Canberra, ending years of often difficult and protracted negotiations.
"The leaders of our two countries have attached great importance to the signing of this document," said Gao. "It is a milestone in bilateral relations."
China is Australia's biggest trading partner, with the two-way flow exceeding Aus$160 billion (US$123 billion) annually.
Under the deal more than 85 percent of Australian goods entering the country will carry no penalty.
With Australia having already sealed similar pacts with Japan and South Korea, a large percentage of Australian exports will soon be tariff-free.
Australian businesses currently face charges of up to 40 percent on goods sent to China, but under the deal penalties on virtually all resources and energy products -- a key plank in the trade relationship -- will be abolished.
Duties will also be lifted on agricultural exports including wine, meat, seafood, and dairy products to feed China's growing middle class.
In return, Australia will remove the existing five percent tariff on Chinese electronics and whitegoods, meaning cheaper goods for Australian consumers but some reduction in revenue.
China also won concessions on foreign investment, with the threshold for government review to be lifted in most areas apart from agricultural land and agribusiness.
"The landmark agreement will lock in our existing trade relationship with our largest trading partner, and will be a catalyst for future growth across goods, services and investment," said Robb.
Together with the Japanese and South Korean pacts, it will underpin Australia's prosperity for year to come, he added.
"By itself it's hugely significant but put the three together and you really have got a set of trade agreements with over 50 percent of our export markets," he said.
"Given what's going on in the region, the extraordinary explosion of people going into the middle class, this is a landmark set of agreements.
"It will see literally billions of dollars, thousands, many hundreds of thousands of jobs, and will underpin a lot of our prosperity in the years ahead."