Dr Ramos Horta has been recognised for his leading role in East Timor's independence movement, as well as helping maintain a strong relationship with Australia.
"You're an eminent global citizen, a champion of democracy, a great man of your country, a true patriot and a great friend of Australia," Governor General Sir Peter Cosgrove said during a ceremony in Sydney's Admiralty House.
"I congratulate you most warmly on this high honour from our nation to a great representative of Timor-Leste."
Bilateral relations between Australia and East Timor came after Dr. Ramos-Horta's decades-long struggle to secure international support for Timor-Leste's fight for independence from Indonesia.
Dr. Ramos-Horta told SBS he was overwhelmed by the recognition.
"I worked with Australian politicians, government, civil society, the media promoting the cause of Timor-Leste and Australia played a critical role in the liberation of Timor Leste," he said.
"I was doing my duty as foreign minister, as prime minister, president to foster this relationship which continues."
The ceremony comes just days after East Timor marked 15 years since its historic referendum, when more than 80% of the population voted in favour of independence.
Jose Ramos-Horta and Australian Governor-General Peter Cosgrove shake hands during Ramos-Horta's Investiture Ceremony at Kirribilli House.
But it hasn't been easy since. With the focus now on roads and infrastructure, Dr. Ramos-Horta says other steps include eradicating poverty and securing more investment in health and education.
"TAFE I think is one of the best experiments in Australia," he said. "I'd like to see more Timorese come and do TAFE in Australia, and TAFE instructors going to Timor Leste. I know is it being done."
Dr. Ramos-Horta is also pushing for more discussions on sharing resources from the Greater Sunrise gas field.
He's welcomed the decision by both countries to try and settle their differences outside the International Court of Justice, where East Timor is demanding the return of sensitive documents seized by Australia surrounding a controversial oil and gas treaty.
"The relationship is too strong and it will be able to survive, to move on despite occassional differences that we have," he said.
"(The) next step could be for Australia to see how in the medium to long term can better help Timor Leste by agreeing to a maritime boundary that is acceptable to all.
"What Australia needs is to be surrounded by stable, prosperous countries."
