The new aircraft will be the third to service the Kingdom's domestic route and assist with the demand for local travel.
It was commissioned by the Crown Prince Tupouto'a 'Ulukalala in Nuku'alofa on Friday at the Fua'amotu Domestic Airport.
"Today, we are adding a third aircraft to Lulutai Airline's fleet and there is potential for additional aircraft in the near future," Prime Minister Hu'akavameiliku Siaosi Sovaleni said.
"The Twin Otter is well suited for Tonga's outer islands," he said.
"The aircraft has short takeoff and landing capabilities. The Twin Otter will be at ease in the dirt and grass airports of the two Niuas, as well as the short runway in 'Eua.
"It can easily handle the high altitude runway in Vava'u and the low sea level airport in Ha'apai."
The Australian government had provided AU$1.25 million to help with transporting the aircraft, as well as train pilots, purchase spare parts and ensure its smooth transition into servicing the people of Tonga.
Hu'akavameiliku acknowledged the Australian government's commitment to Tonga's economic development.
He said without Australia's "financial and technical support, today would not have been possible".
"The commissioning today is a significant milestone in the Tonga-Australia relationship, and a project that will continue to provide benefits for many years to come not just for Tongans but also for visitors to our shore."
Lulutai Airlines began operations with two aircraft in September 2020 in the middle of the Covid-19 pandemic.
In 2022, Tonga experienced the Hunga-Tonga-Hunga-Ha'apai natural disaster, where Lulutai cancelled all flights to for safety reasons.
The commissioning program was also attended by Ministers of the Crown, Members of Parliament, Australian High Commissioner Rachael Moore, diplomats, church leaders, aviation stakeholders and guests.