The Australian Medical Association of Victoria said on Tuesday it had reached a 12-month interim agreement with the Ben Carroll-led state Labor government.
Doctors at Victorian public hospitals were due to stop work for 12 hours from 7am on Wednesday but cancelled the planned action after agreeing to the interim deal.
The deal includes changes to doctors' working hours and addresses overtime for doctors in training.
Australian Salaried Medical Officers' Federation (ASMOF) Victoria secretary Kevin Shi said doctors had secured several important commitments after almost 15 months of negotiations.
"We have now secured commitments from the government that have made some improvements to hours of work and doctor fatigue," he said.
"However, this falls far short of doctors' expectations, and there is much more that needs to be done.
"Our members are committed to ongoing negotiations as soon as possible to resolve this impasse."
AMA Victoria president Simon Judkins said the interim agreement would help protect patient safety, but did not address systemic understaffing and doctors' pay concerns.
"To attract and retain the doctors we need to support quality clinical care, the Victorian government must be able to provide a package of pay and conditions that effectively competes with other states and territories," he said.
"This interim agreement does not fix that problem, and this will now be the focus of our industrial and advocacy efforts.
"Our union's explicit position is that this remains unfinished business."
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