The South Pacific nation has been subjected to widespread international restrictions since military strongman Voreqe Bainimarama seized power in a 2006 coup and reneged on promises to hold elections in 2009.
"We believe it is time to rebuild political ties, including review of travel sanctions," Bishop told parliament following a mid-February visit to Fiji's capital Suva.
"We were pleased to see that progress towards these elections is being made," she said of polls due by September 30.
"There should not be any doubt in the minds of the international community as to the legitimacy of this election when it is held."
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Ties between Canberra and Suva have been cool since Bainimarama seized power, and Bishop was the first Australian minister to hold talks with the leader since 2008.
Bainimarama has announced his plans to run in the elections and will stand down as military leader at the end of this month so he is eligible to be a candidate.
Among the progress Bishop noted was the appointment of "independent" electoral commissioners and the registration of some 550,000 voters out of a population of 800,000.
"There are challenges involving putting in place an electoral legal framework for the conduct of the elections," she said.
Bishop nonetheless laid out plans for "deeper engagement" with Fiji, including defence exchanges, trade and investment.
"We believe it is time for there to be a new and constructive phase in our relationship with Fiji."
Australia is the biggest source of tourists and investment for the island nation as well as the largest provider of overseas development assistance.
"I am proud that this government has been able to change the direction of our foreign policy and work towards embracing Fiji as it leads into an election," Bishop said.
He said travel sanctions introduced by Canberra restricted the ability of Fijian officials to visit Australia even when they were on legitimate business with no political implications.