Australia will provide $40 million for infrastructure upgrades in Nauru, including the resurfacing of the runway and vital air traffic equipment to improve the country's connections.
The ring road, which circumnavigates the island, will be also upgraded to become more resilient to the effects of climate change.
Foreign Minister Marise Payne says the funding builds on the promised construction of an undersea internet cable, which was announced in December.
"This is essential. (Nauru) is a country that lives on its connectivity, and particularly on air connectivity," Senator Payne said.
The projects will employ locals and use local materials where possible to boost Nauru's economy.
The announcement coincides with a visit from Nauru President Lionel Aingimea to formally open the country's high commission in Canberra alongside high commissioner Camilla Solomon.
