Loudspeakers are being installed in more than 90 places across downtown Melbourne, and they will be tested on 28 December.
In the event of a terrorist attack, sirens will sound and instructions from the police will be broadcast to the public.
The new system comes after police thwarted two alleged plots to target Christmas and New Year crowds in Melbourne.
Four men are due to stand trial next year on terror charges over allegations they were preparing to attack public places over the festive period.
Last month, in a separate case, an Australian-born citizen with Somali parents was charged with preparing to commit a terrorist attack.
Police claim the 20-year-old was planning to use an automatic rifle to shoot as many people as possible in bustling Federation Square on New Year's Eve.
Shane Patton, the acting police chief commissioner in Victoria state, said action must be taken to "make sure that we are resistant to terrorism" - even though Melbourne is "essentially a very safe place".