Bronwyn Bishop has resigned as Speaker over the travel expenses scandal.
Prime Minister Tony Abbott announced on Sunday afternoon that Mrs Bishop will tender her resignation to Governor-General Peter Cosgrove.
Fresh allegations of Mrs Bishop's extravagant taxpayer-funded travel have almost become a daily occurrence since it was revealed she spent over $5000 on a chartered helicopter flight to attend a Liberal Party function.
Mr Abbott announced a fundamental review of MPs entitlements.
"It won't just be tinkering with the system," he told reporters in Sydney.
"Plainly the system that we have is deficient.
"The public deserves to be absolutely confident taxpayers' money is not being abused."
The prime minister said Mrs Bishop had done the right thing by the parliament and the people of Australia.
Sunday was not the day to offer an appreciation of her long political career and contribution to public life, Mr Abbott said.
The review will be carried out by former Finance Department head David Tune and head of the Remuneration Tribunal John Conde.
Mr Abbott insisted the review would not be a "quickie" but declined to give a specific time frame.
The prime minister refused to divulge details of his conversation with Mrs Bishop, who he acknowledged as one of his friends.
"This has obviously been a very difficult day for Bronwyn Bishop," Mr Abbott said.
