More than five million people have spent more than 260 days under restrictions, with Melbourne dubbed the "world's most locked down city".
This most recent lockdown, which has been in place since August, came to an end after 70% of the city's population received both vaccine doses.
Images from the city's reopening show people celebrating in bars.
Some people on social media reported hearing fireworks and cheering in celebration.
However the city's new found freedoms are only applicable to those who have been vaccinated. Vice Premier Daniel Andrews said non-vaccinated people will not be able to enjoy the lifting of restrictions until next year.
Even for those who have had the jab, there are still restrictions.
Residents are not allowed to leave the city and shops will remain closed until the number of people who have received a second dose reaches 80%.
Bars and cafes can only have 20 fully vaccinated customers indoors and 50 outdoors. Hairdressers can only have five customers in their premises at the same time.
Authorities in Victoria state have warned that the easing of lockdown could lead to "intense pressure" in hospitals.
According to ABC News, the government is predicting cases in the state to peak at about 4,000 a day in December.
Australia has recorded about 150,000 cases and 1,500 deaths since the pandemic began.