More than $33 billion has been added to the share market's value as investors cheered a tentative Greek bailout deal.
In the market's second best session of 2015, both the S&P/ASX 200 and All Ordinaries jumped almost two per cent.
Investors across the globe welcomed Greek Prime Minister Alexis Tsipras' acceptance of a 86 billion euro ($A128 billion) bailout deal, which followed weeks of posturing that many feared would see the country forced out of the euro zone.
IG Markets chief market strategist Chris Weston said "grey clouds" had lifted from the local market.
"Greece had given people a reason not to buy ... It has been rescued somewhat overnight," he said.
The gains were spread across the local market, with banks, miners, retailers, healthcare and telco stocks all gaining value.
Markets across Europe, the US and Asia rallied, with Wall Street's Dow Jones Industrial Average lifting 1.2 per cent, London's FTSE 100 gaining almost one per cent and Japan's Nikkei 225 1.5 per cent higher.
The Australian dollar weakened slightly to 74.25 US cents, down about a quarter of a cent from Monday, after the deal strengthened the US dollar.
Mr Weston said it was unclear how long the local share rally could be sustained, but it could push on if the market manages to surpass its high for July of 5,609 points.
All eyes will now be on Greece's parliament, where Mr Tsipras will need to convince colleagues in his leftist government to support the deal just over a week after the country voted against a previous austerity package.
The latest deal will release 86 billion Euros worth of financing to Greece over the next three years, which will allow the country's banks to reopen and see the country avoid a messy exit from the euro zone.
But Mr Tsipras will have a hard time convincing some parts of his government to accept the accompanying austerity package, which includes pension cuts, tax hikes and changes to workplace relations laws.
Greece will also need to set aside 50 billion worth of assets to be sold off under the supervision of foreign lenders, a move angry opponents have already labelled a "coup".
