Facing populist pressure and a resurgence of the anti-immigration One Nation party, he said Australia is not defined by race or religion or culture as many other nations are.
"We're defined by a commitment to common values, political values, the rule of law, democracy, freedom, mutual respect, equality for men and women. These fundamental values are what make us Australian."
Candidates for citizenship must be permanent residents for four years against one year at present. They will also need to demonstrate a job record and how they have integrated.
The new requirements will also toughen a civics test and question would-be citizens on issues such as domestic violence.
The government on Tuesday scrapped a visa program for temporary foreign workers and introduced a system aimed at reducing unemployment among Australians.