"Australia will provide $10 million to help Prime Minister Tsvangirai and the so-called inclusive Government of Zimbabwe to restore basic water, sanitation and health services and relieve the suffering of the Zimbabwean people," Foreign Affairs Minister Stephen Smith said in a statement.
"Australia’s assistance to Zimbabwe to date has been limited to humanitarian aid."
Australia previously gave Zimbabwe humanitarian assistance through aid agencies, but did not provide direct funding to the government headed by President Robert Mugabe. Tsvangirai became prime minister in February under a power-sharing deal.
Smith said Australia recognised there were risks to the new policy and was "under no illusions about the fragility of the political situation in Zimbabwe".
Zimbabwe’s new unity government will be heavily dependent on Western donors and investors to rescue the economy.
Australian Foreign Minister Stephen Smith flagged a dramatic change in the Federal Government’s approach to Zimbabwe.
Last week Mr Smith said the Government’s focus has largely been on providing humanitarian assistance. He said this in his condolence message to Prime Minister Morgan Tsvangirai who lost his wife a car accident.
Mr Smith says the Government’s focus has largely been on providing humanitarian assistance.
He told ABC1’s Insiders program that it is time to become more involved in dealing with the country’s issues including offering political help to the country’s Prime Minister, Morgan Tsvangirai.
"I’m now giving very serious consideration to whether we can do more, whether we can start to try and help rebuild Zimbabwe – particulary in the health area, on the agricultural area, in the education area," he said.
"There are some risks of course associated with that given Mr Mugabe’s ongoing presence."
Mr Smith also said Australia offered its condolences to Mr Tsvangirai after a car crash in which his wife was killed on Friday (local time).
Mr Tsvangirai was also in the car and suffered minor neck and head injuries.
Mr Smith has told ABC1’s Insiders he hopes there will now be a transparent inquiry into what caused the crash.
"I asked our High Commissioner to Zimbabwe to personally relay to Mr Tsvangirai’s key personal staff our condolences at the terrible accident that saw the death of his wife," he said.