The Albert Park circuit will continue to host the Australian GP until 2020 after the Victorian government signed a new deal.
Next season is the last on Australia's current contract and there had been speculation over whether a new deal would be on the cards due to finances.
However, after agreeing a deal that would reduce the taxpayer subsidy, State Premier Denis Napthine announced on Sunday that Melbourne would continue to host the Australian GP through to 2020.
"This is a terrific announcement that reaffirms Melbourne and Victoria as the sporting and events capital of the world," he told 3AW radio station.
"We've secured another five-year deal for the grand prix and we've secured a great deal for the people of Victoria that's a better deal than the existing deal."
He added: "The new deal is on the same terms as the existing contract in that it will be the first race of the season, it will be in March each year."
Napthine also revealed that Melbourne almost lost the grand prix to a rival Australian city.
"There is enormous competition to have Grands Prix as major events around the world," he said.
"I can tell you there was a small city just up the road in another state that was very keen to get the Grand Prix."
Meanwhile, F1 supremo Bernie Ecclestone has welcomed the new deal.
"I congratulate Melbourne for the excellent way in which it presents Formula One to the world," he said.