The new submarines will replace Australia's aging fleet of Collins Class vessels
France has been awarded a A$50bn (€34bn; £27bn) contract to build 12 submarines for the Royal Australian Navy.
Australian Prime Minister Malcolm Turnbull announced at a press conference on Tuesday that France had beaten bids from Germany and Japan.
The submarines will be built in Adelaide creating 2,800 jobs, he said.
The decision was based on a 15-month competitive evaluation process that started in February 2015.
"This is securing the future of Australia's navy over decades to come," Mr Turnbull said.
"Australian workers will be building Australian submarines with Australian steel."
Japan was an early frontrunner to win the contract, thanks to former Australian prime minister Tony Abbott's close relationship with Japanese Prime Minister Shinzo Abe.
But Australia's largest-ever defence procurement was awarded to French company DCNS, which proposed to build a modified version of its Barracuda submarine called the Shortfin Barracuda.
The French bid received unanimous support from the various experts in the government's competitive evaluation process, Defence Minister Marise Payne said.
The Shortfin Barracuda is a 4,500-tonne, conventionally powered submarine, whereas the Barracuda weighs 4,700 tonnes and is nuclear powered.
The French design features an advanced pump-jet propulsion system that is supposed to be quieter than propeller propulsion systems.
The Japanese government's bid with a consortium led by Mitsubishi Heavy Industries Ltd proposed building a version of its 4,000-tonne Soryu-class submarine, lengthened by between 6-8m.
The German government's bid with TKMS offered a 4,000-tonne version of an existing 2,000-tonne submarine.
Work on the submarines, which will replace Australia's aging fleet of Collins Class vessels, is expected to continue into the 2050s, according to a Defence White Paper released earlier this year.
Relationship with Japan
The decision to reject the Japanese bid is seen as potentially having ramifications for Australia and Japan's relationship.
Mr Abe was this week reported to be working behind the scenes to shore up the deal, which is said to have foundered because of Japan's inexperience in building military equipment for export.
The Japanese constitution was changed in 2014 to allow the export of military hardware and the lucrative submarine deal with Australia would have been a major victory for Mr Abe.
The Japanese government was also reportedly keen to further deepen its military ties to Australia as a counter to China's rise.
Shared military technology would increase interoperability between the Japanese and Australian fleets.
Mr Turnbull said he had spoken to Mr Abe and was fully committed to the special strategic relationship between Japan and Australia.
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