Mary MacKillop is now Australia's first Catholic saint. Pope Benedict XVI canonised her at St Peter's in Rome on Sunday.
St Peter's Square was awash with Australian flags and gold balloons bearing Mary MacKillop's image.
The ABC reports about 9000 pilgrims from Australia were among the 50,000 gathered at the Vatican for the occasion.
The canonisation was broadcast live on giant television screens in public places in Australia.
Pope Benedict spoke about her achievements of the Melbourne-born nun, who lived from 1842 to 1909.
"She attended to the needs of each young person entrusted to her without regard for station or wills, providing both intellectual and spiritual formation," he said.
Australian Foreign Minister Kevin Rudd, who was at the ceremony in Rome, says she was an "extraordinary Australian woman".
Mary MacKillop clashed with senior clergy over the independence of the order of teaching nuns that she co-founded. She was briefly excommunicated in 1871 but the Church later exonerated her.
She was eventually put on the road to sainthood by Pope John Paul II, who beatified her in 1995.
In the early 1990s the Vatican accepted she was responsible for miraculously curing a woman who had leukaemia in 1961.
In 2009, Pope Benedict confirmed her second miracle, which involved the healing of a woman with inoperable lung cancer during the mid-1990s.
Veronica Hopson - the first person said to have been healed - told Australian TV on Sunday: "I feel very fortunate that I was given the opportunity to live my life, have a family, have grandchildren, so that's a miracle."
The second person, Kathleen Evans, attended the canonisation mass and carried relics of St Mary to the altar.
"I think she would be delighted to see so many people looking at their own lives and considering how they can live better and care more," Ms Evans said in a statement.
The relics included a piece of red gum from the fencepost at the first school St Mary co-established in 1866, decorated with strands of her hair.
The Pope also canonised Brother Andre of Canada and four other people from Italy, Poland and Spain.