"Space technologies are not just about taking people to the moon, they open up opportunities for many industries, including communications, agriculture, mining, oil and gas," she said.
"An Australian space agency will support the long-term development of space technologies, grow our domestic space industry and secure our place in the global space economy."
An expert report found Australia was in a unique position to support satellite communications and Earth observations for the rest of the world, thanks to the nation's geographic location.
"Western Australia's vast Murchison region is one of the best sites in the world for radio astronomy," the report found.
"We have a long history of operating in the hostile, arid and icy environments of our remote areas and Antarctic regions.
"This makes our nation a natural partner for space, where technologies developed on Earth can be adapted for space."
Former CSIRO boss Megan Clark will run the new agency for a year while it is set up.
The ASA has $26 million funding over four years, as well as a $15 million fund to invest in international space missions so Australian businesses can benefit.
The government also supports the ASA bringing forward budget proposals for major national initiatives such as satellite projects and international joint missions.
The location of the agency's headquarters is yet to be announced.
Australia's been involved in the space industry since the 1940s when Woomera rocket range was established in South Australia.