Parliamentary Secretary for Defence Support Mike Kelly welcomed the announcement, saying that the development of the site would be the responsibility of the Victorian Government through VicUrban.
The redevelopment will result in a mixed-use, including commercial and residential development.
"The Australian Government is particularly keen to see affordable housing built on the site, and this is a condition in the sale to the Victorian Government," Kelly said.
"Defence will consult with VicUrban about the Victorian Government's masterplan for the site, to guide the preparation of a site remediation plan.
"Defence acknowledges the significant heritage values of the property and a management plan has been prepared to protect these. The plan will be included in the contract for sale."
Kelly said that Defence is working closely with the Victorian Environment Protection Authority and environmental advisers to determine the best way of remediating the site.
"Once remediation at Maribyrnong is complete and sale contract particulars have been finalised, the Victorian Government will be fully responsible for the site," Kelly said.
Remediation works are scheduled to commence in mid-2010 and will take approximately two years following receipt of all required approvals.