Laws that passed the House of Representatives on Wednesday will see people who share the images without consent face up to seven years prison.
The laws were brought in following concern about the rise of sexual explicit deepfakes, where a person's image is superimposed on pornographic images, often using artificial intelligence.
Maximum jail terms of up to six years will be imposed for people found to have shared the material without consent, while a maximum of seven years will be in effect for those who have created such sexually explicit content and shared it.
Attorney-General Mark Dreyfus said the sharing of the content has been a damaging and distressing form of abuse, predominantly towards women.
"This insidious behaviour is degrading, humiliating and dehumanising for victims," he told parliament.
"The bill will hold perpetrators to account for causing harm through the non-consensual sharing of deepfakes and ensure Australia's criminal offences keep pace with new technology."
The legislation followed talks between state and territory leaders at national cabinet in May to address gender-based violence.
While the laws will crackdown on the sharing of non-consensual sexual deepfakes, it will not cover the creation of content.
Environment Minister Tanya Plibersek said deepfake content had only perpetuated gender stereotypes and more was needed to be done to address the rising technology.
"The massive upswing in the use of AI is as profound as the shift that we saw in 2007 when the iPhone was introduced but only now is the alarm beginning to be raised," she said.
"As a community, we're not even beginning to grapple with what some of those effects might be. We're just perhaps beginning to understand what the future looks like."
Debate on the legislation will shift to the Senate before it becomes law.
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