Julia Gillard has become the first female Prime Minister-elect, after two of the three key independent House of Representatives MPs backed Labor over the Coalition.
The loose agreement between Labor and rural independents Rob Oakeshott and Tony Windsor means Labor can form government by just one seat - 76, to the Coalition's 74.
Speaking at a press conference in Canberra shortly after Mr Oakeshott and Mr Windsor's announcement, Ms Gillard says Labor is "prepared to govern".
"The events of the past fortnight show us our democracy is very strong indeed," Ms Gillard says.
"Ours will be a government with just one purpose, and that is to serve the Australian people."
"We will be held more accountable than ever before, and more so than any other given government in history," Ms Gillard says.
The PM-elect paid tribute to the independents involved in the negotiation process, including Bob Katter, who eventually decided to side with the Coalition.
She also paid tribute to Coalition leader Tony Abbott, saying coming so close to winning "can't be easy" on him.
Ms Gillard announced the next round of health and education funding would focus on rural and regional areas, after committing to 'fairness' for regional communities following negotiations with the three key independents.
The independents' decision comes after 17 days of deliberation that culminated in a nailbiting finish.
Having initially indicated they would vote as a bloc, Kennedy MP Bob Katter broke from his two independent colleagues and announced he would side with the Coalition.
The Labor leader offered no indication of when she would take up residence in the Lodge, saying she hasn't given it any thought.
Ms Gillard confirmed she has offered independent MP Rob Oakeshott a place in the executive, and that Mr Oakeshott is considering the offer.
She says she will finalise the make-up of her cabinet in the next few days, and hopes the ministry will be sworn in early next week.
Ms Gillard indicated she will honour her commitment to give Mr Rudd a senior cabinet role.
The PM-elect is expected to visit the Governor-General at 5.15pm today, to be sworn into office.
