The funding follows a warning from spy chief David Irvine this month that the bloody conflicts in Iraq and Syria are creating a new generation of militants.
Prime Minister Tony Abbott said up to 60 Australians were fighting alongside Islamic State (IS) jihadists, while another 100 were actively working to support the movement at home.
"Recent images of brutal killings in Syria and the brazen presence of Australian citizens amongst the foreign fighters highlights the need for action to counter radicalisation," Abbott said, adding that IS was using "medieval barbarism allied to modern technology".
Abbott said the Aus$64 million would help support community groups and security agencies, with the emphasis on preventing radicalisation and reducing the threat of home-grown terrorism.
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The premier gave youth activities, mentoring and employment support as examples of how the funding may be spent.
The funding will also help set up a new multi-agency group to investigate, prosecute and disrupt foreign fighters and their supporters.
Abbott said the government had been heartened by the strong support shown by local Islamic leaders to tackle the issue.
The cash is part of a broader Aus$630 million package announced last month to boost counter-terrorism via security and intelligence agencies.
It came as a poll in The Australian newspaper Tuesday showed voters overwhelmingly support a proposed crackdown by the government on fighters returning to Australia from countries such as Iraq and Syria.
The survey revealed that 77 per cent of the 1,207 people questioned would back new laws requiring people travelling to particular countries to prove they have not been in contact with terrorist groups.