The deal, announced by Prime Minister Malcolm Turnbull, is Australia's largest-ever defence contract.
The Shortfin Barracuda submarines will be built in Adelaide using Australian steel by French shipbuilder DCNS, creating 2,800 jobs in Australia.
French President Francois Hollande welcomed the announcement.
"It is Australia that picked us. And we owe it a lot, as a century ago Australians came over to defend us. They came from afar, giving for some their life to free us."
"One hundred years later, it is once more Australia that is entrusting us in giving us this cooperation, this partnership for the next 50 years. So today I say, 'Thank you DCNS for this success, thank you the (French) defence industry for this technological quality, thank you to French team to secure this wonderful contract and thank you Australia to entrust us'."
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However the decision has been criticised by Japan, which, along with Germany, had been vying for the contract.
Japanese Defence Minister Gen Nakatani said he was disappointed by the decision.
"I found it very regretful that we were not selected this time. Japan has advanced submarine technology and we have confidence in it. We would like to ask Australia why we weren't selected, so that we can reflect on the findings for future operations."
German Vice-Chairman of the Supervisory Board of ThyssenKrupp Marine Systems, which had also submitted a tender for the contract, echoed similar sentiments.
"At the moment there is a big disappointment for the staff and for the management as well as for the supervisory board. We actually didn't expect the Australians to decide on the French. One must accept this now, but at the moment everybody here is certainly hit by this decision."
