Addressing a crowd of 500 people in Sydney, which included "old friends" former prime ministers Bob Hawke and John Howard, the high-profile Republican said America needed its Aussie mate more than ever, even though there might be misgivings about President Donald Trump.
In a wide-ranging speech covering issues including regional trade and security, Senator McCain said one key area of cooperation concerned China, which he accused of acting unfairly on a number of fronts.
That included its construction of artificial islands in the South China Sea to assert its claims over the contested waterway.
China had also refused to open its economy to allow foreign businesses to compete, had stolen intellectual property, and used its trade and investment and tools to coerce its neighbours, he said.
"The challenge is that as China has grown wealthier and stronger, it seems to be acting more and more like a bully," Senator McCain said on Tuesday.
The 80-year-old political veteran, who ran for the presidency against Barack Obama in 2008, said Australia and America were better off dealing with China's strategic and economic challenges together.
"I think that way we could collectively address and perhaps modify Chinese behaviour," he said.
Senator McCain suggested Australia consider joining the US and other Asia Pacific neighbours in regular patrols of the South China Sea to show China the importance of freedom of navigation.
A US Navy patrol near a group of China's man-made islands in the South China Sea last week angered Beijing, which accused America of trespassing an area over which it claims to have "indisputable sovereignty".
