Prime Minister Anthony Albanese and his Vanuatu counterpart Jotham Napat signed the Nakamal Agreement in Canberra on Monday after years of stalled negotiations.
The watered-down deal was inked almost 10 months after Mr Napat pulled out of a signing ceremony in September over concerns Vanuatu's sovereignty would be undermined.
Half a billion dollars will still be provided to the Pacific nation but over a longer period than the originally planned 10-year agreement.
"To reinforce Pacific collective security and sovereignty, Vanuatu shall not permit its territory to be used for any foreign military base or infrastructure," the new deal reads.
The agreement states Port Vila will consult Australia on "proposed third-party engagement in Vanuatu's critical infrastructure".
Any critical infrastructure must also remain free from "militarisation, any form of foreign interference or unauthorised access".
The treaty entrenches Australia as the primary policing partner for the Pacific nation.
China is also pursuing a pact with Vanuatu, known as the Namele Agreement.
Mr Napat committed to releasing the text of Namele once it had been signed and received "clearance" from Beijing.
"There's nothing to hide," he said.
"Our government is transparent and I'm so grateful that the prime minister has also given me the clearance to share the Nakamal Agreement."
Australia's deal with Vanuatu does not stop it from continuing policing activities with China, but states Port Vila will prioritise Pacific Island Forum members when making such requests.
Under the Nakamal Agreement, Vanuatu must request assistance from Australia, New Zealand and France in response to a natural disaster before approaching other countries.
The deal will provide "enhanced" mobility arrangements through visas for Vanuatu's citizens but will require the country to develop "effective mechanisms" to differentiate citizenship by investment under the golden passports.
People who have bought citizenship and a passport through a $US130,000 contribution include self-described misogynist and influencer Andrew Tate.
Mr Albanese said the agreement affirmed Australia's role as Vanuatu's largest economic security and development partner.
"This agreement advances a consensus that security is the shared responsibility of the Pacific family ... and encapsulates Vanuatu's sovereign decision not to permit its territory to be used for any foreign military base or infrastructure," he told reporters in Canberra.
Mr Napat said the deal marked a significant step in the Vanuatu-Australia relationship.
"With the signing of the long-awaited Nakamal Agreement, Australia and Vanuatu are close neighbours, trusted partners," he said.
The Nakamal Agreement has been ratified by the Vanuatu government and will go through the parliamentary process in Australia.
Addressing Vanuatu's prime minister during parliament, Opposition Leader Angus Taylor said nations were living in dangerous times.
"Authoritarian powers seek to coerce and control using both carrots and sticks, and for countries like ours, enhancing our partnership sends a strong message about the importance we place on sovereignty, collective security and the solidarity of our fellow democracies," he said.
Mr Albanese is expected to travel to Fiji and the Solomon Islands in July to progress negotiations on a treaty with Honiara and ink a deal with Suva.
The agreement with Vanuatu comes just a month after Australia agreed to a security and economic deal with Fiji.
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