Prince William has been given a royal welcome at The Block, in inner-Sydney Redfern, where he is meeting with members of the indigenous community.
The second in line to the British throne was greeted with a traditional Aboriginal smoking ceremony at Redfern Community Centre, where up to 2,000 well wishers looked on.
"I'd like to thank Prince William for coming here to the Block today," Charles Madden, director of the Aboriginal Medical Service in Redfern, said.
"It's good to have him here because The Block has produced a lot of positive things for Redfern. Redfern isn't the bad place people make it out to be."
Crowd not disappointed
Prince William arrived at the 10 minute ceremony about 15 minutes late, but the crowd was not disappointed.
The mostly Aboriginal crowd clapped and cheered as the 27-year-old heir to the throne arrived.
One woman, Barbara Selby, brought a large photo of the late Princess Diana meeting her daughter and grandson when she was in Sydney in 1997 to open the Victor Chang building at St Vincent's Hospital in 1997.
"I'd like William to see it," she said.
Community centre visit
Prince William gave the crowd a brief wave when the ceremony was over, and was ushered inside the community centre.
The children's play room, full of about 30 children aged five to 12, fell dutifully silent when the prince entered and sat down at a table to watch some children draw.
After reading them the Australian classic story, Possum Magic, written by Mem Fox and Julie Vivas, he played Wii bowling against eight-year-old Marc Anthony Lawrence.
Nine-year-old Penelopee McGrath took the opportunity to talk to the prince as he sat on a couch surrounded by kids.
"Does your grandmother live in a big castle?" she asked. "She does," replied the prince.
Before the royal visit, the children had prepared a colourful welcome sign covered in their handprints.
“Thrilled” by Sydney
Earlier, he met a selection of young celebrities, sporting figures and academics during his first official engagement in Australia.
International cricketer Michael Clarke and singer Delta Goodrem were among the guests invited to join the prince for a private lunch at Sydney's Admiralty House.
The second in line to the British throne was whisked to Governor-General Quentin Bryce's residence shortly after touching down at Sydney Airport.
Wallabies captain Rocky Elsom, Olympic gold medallists Libby Trickett and Matthew Mitcham, actor Lucy Durack, University of Tasmania research fellow Sharon Andrews and NSW Young Australian of the Year 2010 Jack Manning Bancroft also attended the lunch.
"I love the fact they've invited a lot of young people. There's a real mix from all walks of life," Goodrem said.
The prince was overheard talking about his admiration for Australian sport to Michael Clarke, the vice-caption of Australia's Test cricket team.
He also described the view from Admiralty House across the harbour as "thrilling" and waved to passing ferry passengers.
Wednesday's itinerary includes trips to Holsworthy Barracks, Sydney Harbour and finally a barbecue in the Botanical Gardens.
The prince will visit Melbourne on Thursday before returning to the UK on Friday.
