Vietnamese military forces will train alongside Australian defence personnel.
Prime Minister Tony Abbott met with Vietnam's leader, Nguyen Tan Dung, in Canberra on Wednesday.
Mr Abbott said Australia and Vietnam had a strong shared interest in peace and stability in the region.
"It is good to see that 120 Vietnamese military personnel will be receiving some training here in Australia and ... Vietnamese military personnel will be involved in joint exercises here in Australia," he said during a joint press conference.
Prime Minister Dung said he and Mr Abbott had discussed greater cooperation between the two nations' special forces.
They had also agreed on the need for maritime security and freedom of navigation in the South China Sea.
"(We must) exercise self restraint and refrain from actions that may escalate the tension in the region, including the use of force to unilaterally change the status quo," Mr Dung said.
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