It has been reported from the Indo-Pacific coastal regions of Australia, New Zealand, and New Caledonia, although some of these records may represent confusion with other species.

The Australian bandfish was first formally described in 1899 by the Irish born Australian ichthyologist James Douglas Ogilby with the type locality given as Port Jackson, New South Wales.

[1] The specific name australis means "southern", as it the time Ogilby described it this was thought to be the southernmost species in the genus Cepola, as C. haastii of New Zealand was then placed in the monotypic Hypolycodes.

[2] The taxon currently regarded as Cepola australis may represent more than one species.

They live in burrows in areas of sand and mud from the shallows down to a depth of 70 m (230 ft).