Education Minister Christopher Pyne has promised the government will get out of the way of universities but says institutions must embrace this freedom to improve their offerings.
"Do not look to Canberra to be told what to do," he told the Universities Australia conference on Wednesday.
"Each institution should be clear about its purpose and its goals, and pursue its own goals as well, as distinctively, and as innovatively as it can."
The freedom to innovate was especially important as universities worked out what to do with online education.
Mr Pyne said the emerging digital education world was a frontier-like space that both excited and threatened.
It was not up to government to provide a map or unduly control what universities could do.
"Be bold, be wary of fads, keep quality at your core and defend your brands as they enter the unknown," was his advice.
The minister framed his speech around former prime minister Robert Menzies' legacy of university expansion and the values he held about higher education's transformative power.
He agreed higher education and research was vital to the continued strength of Australia's economy.
But he held out little hope the May budget would meet the sector's repeated calls for more money, saying only fixing the budget for the long term would ensure the sustainability of university funding.
The government will consider a review of the demand-driven system for funding undergraduate places along with commission of audit recommendations in the lead up to the budget.
Mr Pyne hoped business and the wider community would increase donations and partnerships for universities to help support high quality research.
