King Charles III won't feature on the $5 note, with the portrait of the late Queen Elizabeth II to be replaced with an Indigenous design.
The Reserve Bank has decided to update the note to feature a new design which "honours the culture and history of the First Australians".
"This new design will replace the portrait of Her Majesty Queen Elizabeth II," the bank said in a statement on Thursday.
"The other side of the $5 banknote will continue to feature the Australian parliament."
It said the decision followed consultation with the government, which supported the change.
Treasurer Jim Chalmers weighed in on the decision, saying the change was an "opportunity to strike a good balance".
"This is a good opportunity to strike a good balance between the monarch on the coins and a First Nations design on the fiver," he told reporters in Melbourne.
"It's the right decision taken for the right reasons, and I welcome it."
Opposition Leader Peter Dutton likened the move to changing the date of Australia Day.
"I know the silent majority don't agree with a lot of the woke nonsense that goes on but we've got to hear more from those people online," he told 2GB Radio.
Mr Dutton accused Prime Minister Anthony Albanese of being central to the decision for the king not to appear on the note, urging him to "own up to it".
The Australian Monarchist League slammed the government for "trouncing Australian democracy" and had provided the parliament with a petition with more than 3000 signatures urging for the king's image to go on the note.
"It is virtually neo-communism in action," it said in a statement.
"President Xi (Jinping) could possibly learn a few tricks from our prime minister."
Australian Republic Movement chair Craig Foster said Australians deserved to see themselves and "only themselves" in national symbols including money.
"To think that an unelected king should be on our currency in place of First Nations leaders and elders and eminent Australians is no longer justifiable at a time of truth telling," he said.
The bank plans to consult with Indigenous groups in designing the $5 note and expects it to take a number of years to be designed and printed.
The current $5 note will continue to be issued until the new design is introduced and will remain legal tender.
The face of King Charles III is expected to be seen on Australian coins later this year.
