Scott Ludlam, 46, who is deputy leader of the Australian Greens party, made the announcement in a Facebook post.
He said he had been dealing with mental health issues "for a while".
"I will return to work as soon as I'm able to give the commitment the work demands," Senator Ludlam wrote.
"I am fortunate to be getting the very best of care from my friends and family, and my health professionals," he added.
Figures from across Australian politics wished Mr Ludlam well on social media, praising his honesty.
"Wishing my dear friend and colleague @SenatorLudlam all the best for a speedy recovery. We love you Scott," Australian Greens chief Richard Di Natale tweeted.
Western Australia Labor Leader Mark McGowan wrote: "Thinking of you @SenatorLudlam. A brave thing to do today. All WA parliamentarians wish you the very best. MM."
As the news spread on Twitter, many Australians spoke of their respect for the Greens leader, suggesting that his openness would help others who are fighting mental health battles.
During his absence, Senator Ludlam will be offered a "pair" in the Australian Senate. This means a single vote on the opposing side of debates will be cancelled out for as long as he is on leave.
Mr Ludlam is a popular figure among young left-wingers in Australia, and has been vocal about online privacy issues. In 2015 he branded the Australian government's new national security legislation a privacy invasion, and provided a list of ways for people to circumvent data retention laws.
The senator said his work for Western Australia - which includes communications, international aid, defence, foreign affairs and nuclear technology spheres - would be handled by "senate colleagues" and "the team in my office".
According to the Sydney Morning Herald, a large number of Australian MPs have admitted privately that they struggle to cope with alcoholism, feelings of isolation, and stress from marriage breakdowns or scandals.
Warren Entsch, a Liberal party leader and former MP, told the Herald he was left in "absolute hell" back in 1999 when the opposition Labor party were pursuing him over a defence contract they said was dodgy.
"I was sick. I was devastated. I had to go to Canberra Hospital for chest pains. There were a couple of days where I couldn't get off the couch in my office," he said.
"I always feel for someone who is getting beaten up by the media - what you go through from a mental health perspective is absolutely intense."
Former MP Doctor Malcolm Washer, a qualified GP who was known as "the doctor in the house", has claimed there is a "significant" amount of depression among Australian politicians, adding that the job is "very isolating".
He has estimated that around 20% of people working in Parliament House are taking anti-depressants, and many more are on sleeping pills.
Mr Ludlam is not the first senior leader to go public about his depression. Former Liberal MP Andrew Robb took leave for six months in 2010 to address the condition, and is now a passionate advocate for mental health.
Scott Ludlam is one of a number of high-profile figures who have spoken about their mental health issues in recent days.
Singer Zayn Malik, a former member of the wildly successful boyband One Direction, has talked about his battle with "extreme anxiety", saying: "Anxiety is something people don't necessarily want to advertise because it's seen, in a way, like a weakness."
The 23-year-old said he had pulled out of several live performances earlier this year due to mental health struggles.
Why do pop stars struggle with anxiety?
Anxiety 'seen as weakness' says Malik
'So did I': The words that helped a mum through postnatal depression
"I speak about it so that people understand that it doesn't matter what level of success you have, where you're from, who you are, what sex you are, what you do - you can still experience these things," Mr Malik told ES magazine.
Another world-famous singer, Adele, shared her experience of postnatal depression after the birth of her son Angelo.
She told Vanity Fair that while she "loves her son more than anything", she sometimes felt she had made "the worst decision" of her life as she struggled to adjust to motherhood.
She told the magazine a breakthrough came when she opened up, admitting: "One day I said to a friend, 'I ****** hate this,' and she just burst into tears and said, 'I ****** hate this, too."
An Australian senator has been flooded with support after announcing he is taking a leave of absence to treat depression and anxiety.