The roots of the Australian Ballet can be found in the Borovansky Ballet, a company founded in 1940 by the Czech Dancer Edouard Borovansky. Borovansky had been a Dancer in the touring ballet company of the famous Russian ballerina Anna Pavlova and, after visiting Australia on tour with the Covent Garden Russian Ballet, he decided to remain in Australia, establishing a ballet school in Melbourne in 1939, out of which he developed a performance group which became the Borovansky Ballet. The company was supported and funded by J. C. Williamson Theatres Ltd from 1944. Following Borovansky's death in 1959, the English Dancer and administrator Dame Peggy van Praagh was invited to become artistic Director of the company. J. C. Williamson Theatres Ltd decided to disband the Borovansky Ballet in 1961.

In 1961, J. C. Williamson Theatres Ltd and the Australian Elizabethan Theatre Trust received federal subsidies towards the establishment of a national ballet company. These organisations established the Australian Ballet Foundation to assist with the establishment of a new company, which in 1962 became the Australian Ballet. Peggy van Praagh, who had been kept on a retainer by J. C. Williamson Theatres Ltd through the intervening year between the disbanding of the Borovansky Ballet and the establishment of the Australian Ballet, was invited to become the founding artistic Director of the company. The majority of the Dancers employed by the fledgling company were drawn from former members of the Borovansky Ballet.

The first performance by the Australian Ballet was Tchaikovsky's Swan Lake, staged at Her Majesty's Theatre, Sydney on 2 November 1962. The principal Dancers in the first season were Kathleen Gorham, Marilyn Jones and Garth Welch. Van Praagh also invited the Royal Ballet's Ray Powell to temporarily became the company's first ballet master, with Leon Kellaway (brother of Cecil Kellaway), a former Dancer with the Covent Garden Russian Ballet, as the company's first ballet Teacher. In later years Sir Robert Helpmann, Marilyn Jones and Maina Gielgud made major contributions as Artistic Directors of the Australian Ballet.

In 1964 van Praagh established the Australian Ballet School, which was formed specially to train Dancers for the company and remains the company's associate school to this day. Dame Margaret Scott was the founding Director of the school, followed by Gailene Stock CBE AM, Marilyn Rowe OBE, and now Lisa Pavane, all three former company principal artists.

The company's current artistic Director is David McAllister AM, who was a principal Dancer until 2001. The company's previous artistic Directors were: Ross Stretton (1996–2001); Maina Gielgud (1983–96); Marilyn Jones (1979–82); Anne Woolliams (1976–77); Sir Robert Helpmann (1965–76) and the founding artistic Director, Dame Peggy van Praagh (1962–74; 1978).

The Telstra Ballet Dancer Awards have been made annually since 2003, in support of the aspirations of The Australian Ballet's elite young Dancers. It is the biggest prize available specifically to a Dancer in Australia, with a cash prize of $20,000 to the winner. The Telstra People's Choice Award is made to the most popular of the nominees in that year, using internet and SMS voting. The winner of the People's Choice receives a cash prize of $5,000.

The most recent appointment to the position of executive Director (July 2013) is Libby Christie, former Managing Director of the Sydney Symphony Orchestra. Her predecessor was Valerie Wilder, who succeeded Richard Evans.