Foreign Minister Julie Bishop says Australia will contribute $200 million over four years to the United Nation's Green Climate Fund, a global fund to help poorer countries tackle climate change.
The announcement was made at the United Nations Conference on Climate Change in Lima, Peru.
The Australian government has been criticised as being slow to act after United States President Barack Obama announced at the G20 meeting in Brisbane last month that the US would lead the way with a donation.
Ms Bishop told the UN summit in Peru that Australia was committed to helping find a solution to climate change.
"Australia will continue to engage constructively with our partners on the journey to Paris and develop a global framework which delivers a global solution to global climate change."
Prime Minister Tony Abbott said the money would come out of the foreign aid budget and added that it was fair and reasonable for the government to pledge a contribution despite having ruled it out at the G20 summit in Brisbane.
"We will be making what I think is a prudent and proportionate contribution to this particular fund and that money will be strictly invested in practical projects in our region."
Last month, the United States announced a contribution of $US3 billion, while Japan pledged $US1.5 billion ahead of a Berlin conference that received commitments of up to $US9.3 billion from 21 countries, including four developing nations.
However, Australia did not attend the conference in Berlin and has been critcised for not committing to the fund.
Greens leader Christine Milne, who is also in Peru for the climate conference, told the ABC the Abbott government had been too slow to act.
"Pressure from the international community has been so strong that the Abbott government could not continue to withstand it and expect to be taken seriously at these global climate negotiations," she said.
World leaders from United Nations Secretary-General Ban Ki-moon to the president of Nauru have attended the UN climate talks in Lima.
Representatives from around 190 nations have participated in the summit, which ends on December 12 and is attempting to hammer out a deal on how to limit rising greenhouse gas emissions ahead of climate change talks in Paris in 2015.
United Nations Secretary-General Ban Ki-moon called for a shift to greener economies saying there was still a chance of limiting global warming to an internationally agreed level.
So far 24 countries have committed money to the Green Climate Fund including the United States, Japan, Germany, France, Sweden, Switzerland, South Korea, Canada and Spain.
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