The government of prime minister Scott Morrison lifted restrictions on Australians travelling overseas last month, sparking a flood of travel bookings for the southern hemisphere summer.
But Morrison -- who is hoping to be re-elected next year -- had pointedly refused to relax travel rules for most non-Australians.
That decision left an estimated 1.4 million skilled visa holders stuck in Australia, unable to return if they decided to leave.
Business groups had lobbied hard for vaccinated visa holders to be allowed to return, as they struggle to fill jobs and gird for the beginning of a third year of restrictions.
Among those most vocal in calling for rules to be further relaxed was the beleaguered university sector.
According to Universities Australia, an industry group, 130,000 international students remain outside the country.
"They want nothing more than to re-join their classmates in Australia," said the group's chief executive Catriona Jackson, who described the decision as "great news."
There had been fears that many Asian students would opt to study in person in the United States or Europe rather than pay for online courses based in Australia.
There is no word yet on when leisure travellers may be able to return to Australia, a blow to the equally hard-hit tourism sector, which has seen visitor numbers virtually evaporate since borders were closed in March 2020.
While some Australian states still require quarantine, vaccinated Australians, some visa holders and citizens of Japan, South Korea and Singapore will now be able to visit Australia with only a pre-departure negative Covid-19 test.