It was written by the band's main songwriter, Ray Davies.

In the song, the character Derek (who is featured in the story line of Arthur (Or the Decline and Fall of the British Empire)) attempts to convince his father, Arthur, of the great opportunities available in Australia, where there's "no drug addiction" and you can "surf like they do in the U.S.A." Derek's advertisement is compared to John Smith, who campaigned for America in a similar manner, by author Thomas Kitts.

This sequence also features a Wobble Board, an Australian instrument.

"Australia" was released in most countries only on Arthur (Or the Decline and Fall of the British Empire), where it was the closing track on side one.

In Australia, an abbreviated version of the song was released as a single, with another Arthur track, "She's Bought a Hat Like Princess Marina", on the B-side.