Australia's foreign aid and development program is to be independently reviewed for the first time in 14 years.
The review will be conducted by an external panel chaired by former senior diplomat and bureaucrat Sandy Hollway.
Foreign Minister Kevin Rudd denied Australia's aid budget had lost its way.
"It's a timely thing to do," he told ABC Radio on Tuesday, adding the last time a root-and-branch review of the aid budget had been conducted was in 1996.
"The time has come to do it again."
The review will examine the effectiveness and efficiency of Australia's aid and guide the strategic direction of the aid program.
Mr Rudd said Australia's aid budget had doubled in the past five years to about $4 billion and the government was on track to double it again during the next five years.
"We need to make sure every dollar is being properly spent."
The review will take about five months to complete and aims to maximise the effectiveness of the aid program, which is projected to reach $8 billion - or 0.5 per cent of gross national income - by 2015/16.
"The aim of Australia's aid program is to reduce poverty through improved medical care, education, economic opportunities and governance," Mr Rudd said.
"In doing so, the program also aims to enable communities to generate their own long-term sustainable economic development, and increase stability within our region."
The review panel will consult with key stakeholders, including non-government organisations, relevant Australian government departments, partner governments and bilateral and multilateral donors.
