The Australian red ensign is the flag to be flown by Australian-registered merchant ships. Either the Australian National Flag or the Australian red ensign can be flown by government ships, fishing vessels, pleasure craft, small craft and commercial vessels under 24 metres in tonnage length, but not both ensigns at the same time.

The rules for flying flags on non-defence ships are set out in sections 29 and 30 of the Shipping Registration Act 1981 and regulation 22 of the Shipping Registration Regulations. Foreign vessels may, as a courtesy, fly from the foremast either the Australian National Flag or the Australian red ensign when berthed in an Australian port.