Cortinarius australiensis has been recorded from New South Wales, and Mount Lofty Ranges, Kuitpo and Ashton in South Australia. It has been recorded from the wet forests of Tasmania, but is rare there. The fungus is mycorrhizal with eucalypts. Large clumps of fruitbodies appear in eucalypt forests between April and July. C. australiensis has the largest mushrooms of any species native to Jarrah forests of southwestern Australia, and they are often eaten by native mammals. The mushroom also occurs in New Zealand, where it grows with Leptospermum.