"Australia remains extremely concerned about the potential for miscalculation and further escalation of conflict in the region," Acting Foreign Minister Katy Gallagher said on Friday.
"This is in no one's interests.
"We urge all parties to exercise restraint and step back to avoid a further spiral of violence."
Australia will continue working with its partners to try to reduce tensions and prevent further regional spillover, the minister added.
Reuters on Friday cited sources saying Israel launched an attack on Iranian soil, in the latest tit-for-tat exchange between the two arch foes.
Iranian media later reported explosions but an Iranian official told Reuters those were caused by air defence systems that shot down three drones over the central city of Isfahan.
Israel was silent on Friday about the latest escalation.
Tensions have been rising since a presumed Israeli air strike on the Iranian embassy compound in Damascus on April 1 that destroyed a building and killed several Iranian officers.
In response, Iran on April 14 launched missiles and drones toward Israel. Almost all were shot down.
Meanwhile, the Australian government's SmartTraveller website has been updated to reflect today's developments.
The advice for Australians remains "do not travel" to Iran and "reconsider your need to travel" to Israel or the Occupied Palestinian Territories.
"Regional tensions are high, and the security situation could deteriorate quickly with little or no notice," the website said.
with Reuters
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