Claim: A penal colony was how Australia was first settled.

Australia -LRB- -LSB- əˈstreɪliə -RSB- , -LSB- ɒ - -RSB- , -LSB- - ljə -RSB- -RRB- , officially the Commonwealth of Australia , is a country comprising the mainland of the Australian continent , the island of Tasmania and numerous smaller islands . It is the world 's sixth-largest country by total area . The neighbouring countries are Papua New Guinea , Indonesia and East Timor to the north ; the Solomon Islands and Vanuatu to the north-east ; and New Zealand to the south-east . Australia 's capital is Canberra , and its largest urban area is Sydney .   For about 50,000 years before the first British settlement in the late 18th century , Australia was inhabited by indigenous Australians ,  who spoke languages classifiable into roughly 250 groups . After the European discovery of the continent by Dutch explorers in 1606 , Australia 's eastern half was claimed by Great Britain in 1770 and initially settled through penal transportation to the colony of New South Wales from 26 January 1788 . The population grew steadily in subsequent decades , and by the 1850s most of the continent had been explored and an additional five self-governing crown colonies established . On 1 January 1901 , the six colonies federated , forming the Commonwealth of Australia . Australia has since maintained a stable liberal democratic political system that functions as a federal parliamentary constitutional monarchy comprising six states and several territories . The population of 24 million is highly urbanised and heavily concentrated on the eastern seaboard .   Australia has the world 's 13th-largest economy and ninth-highest per capita income -LRB- IMF -RRB- . With the second-highest human development index globally , the country ranks highly in quality of life , health , education , economic freedom , and civil liberties and political rights . Australia is a member of the United Nations , G20 , Commonwealth of Nations , ANZUS , Organisation for Economic Co-operation and Development -LRB- OECD -RRB- , World Trade Organization , Asia-Pacific Economic Cooperation , and the Pacific Islands Forum .