The timeline to recover 450 gigalitres of water earmarked for the environment has been pushed out until the end of 2027 and water infrastructure projects until the end of 2026, after the initial June 2024 target was on track to be missed.
The new plan - which limits the amount of water extracted from the basin - includes more options and funding to deliver the remaining water, such as through voluntary buybacks.
The 12-year plan to restore the nation's largest and most complex river system, which runs through four states and dozens of towns and cities, was created in 2012 after years of overuse and the devastating millennium drought.
The Murray-Darling Basin Authority has previously advised there would be a shortfall of 750 gigalitres - about a quarter of the target - by June 2024.
Environment Minister Tanya Plibersek said the agreement struck between the federal government and NSW, South Australian, Queensland and ACT governments came at a crucial time with the next drought "just around the corner".
"Australia is facing an environmental emergency," she said.
"The Murray-Darling pumps life into the heartland of our country.
"If we don't act now to preserve it, our basin towns will be unprepared for drought, our native animals will face the threat of extinction, our river ecosystems will risk environmental collapse and our food and fibre production will be insecure and unsustainable."
Victoria is the only basin government that hasn't signed up to the new plan.
But Ms Plibersek said her door remained open and there were significant benefits for the state to sign.
The legislation will be introduced into federal parliament in coming weeks, with both houses to sit for two weeks from September 4.
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