Anthony Albanese and Feleti Teo held a signing ceremony on Wednesday to mark the occasion, complete with dancers of Tuvaluan heritage living in Tonga.
Mr Albanese said they were making "history" with a "groundbreaking agreement".
"We are genuinely looking out for each other's interests with great respect for each other and a commitment to putting our people first," he said.
The Falepili Union is a comprehensive pact between the region's powerhouse and the tiny Polynesian state, which is the world's lowest nation and severely threatened by climate change.
Australia will offer up to 280 visas to Tuvaluans each year to build lives in Australia, fund climate adaptation and development projects.
Australia also gives a security guarantee, and with it, effective sign-off on any defence or security related matters in Tuvalu.
"We will have a country that will be legally committed to come to the aid of Tuvalu when Tuvalu encounters a major national disaster or a major health pandemic, and also providing security guarantees," Mr Teo told AAP.
"It's a groundbreaking arrangement in terms of foreign relations."
The migration pathway means that theoretically all Tuvaluans could have moved to Australia by mid-century - as the effects of climate change begin to challenge life for the 10,000-strong nation.
"I think most of the people in Tuvalu will stay," Mr Teo said.
"For Tuvaluans that do live in Australia, at least they have the opportunity to benefit from whatever the Australian system and government offer their permanent residents."
Tuvalu leader Feleti Teo says climate challenges such as rising sea levels need to be tackled. (Ben McKay/AAP PHOTOS)
The two countries negotiated the pact in secret, and when Mr Albanese made the announcement at the 2023 PIF summit in the Cook Islands, it shocked many across the Pacific.
The pact has been criticised by some as neo-colonisation, or blunting Tuvalu's sovereignty.
Mr Albanese counters those concerns by saying it was negotiated and signed at Tuvalu's request.
"This is about the Pacific family looking after Pacific security," he said, when asked if it was a deal to counter China's influence.
Mihai Sora, the director of the Lowy Institute's Pacific Islands Program, said part of Canberra's goal was to block Beijing.
"Raising the bar for China's strategic ambitions to enter the security space in the Pacific is one objective, yes," he said.
"Protecting regional unity and regional security norms in the face of challenges from geopolitical tensions is another."
Anthony Albanese says history has been made with the Falepili Union between Australia and Tuvalu. (Lukas Coch/AAP PHOTOS)
Mr Sora said the security pledge was a "a massive commitment for Australia, when considering Tuvalu's vast (exclusive economic zone) and the existential threat it is facing from climate change".
Mr Albanese said it was a "personal priority" to embed Australia within the Pacific family.
"Being part of the conversation means that Australia gets to shape the solutions in our national interests and in the interests of our region," he said.
On Wednesday - Mr Albanese's first full day in Nuku'alofa having skipped the opening days of the summit - he also won support for the Pacific Policing Initiative from PIF members.
That challenging discussion is being saved for the retreat on Thursday, when leaders will fly north to the Tongan island of Vava'u for an all-day private hideaway.
At that meeting, Tuvalu will seek support from leaders for a clause in the summit communique which decries sea level rise.
"Sea level rise is the most severe manifestation of climate change, and we need to tackle that front on," Mr Teo said, saying he had Australia's in-principle support.
"I'm hoping that during the retreat we'll be able to persuade the other foreign leaders to support a strong statement coming out of Tonga specifically on sea level rise."
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