Melbourne's five million residents will be barred from leaving home for six weeks, except for essential reasons.
Police say they are setting up a "ring of steel" around the city, with "checkpoints anytime and anywhere" to enforce the measures.
Borders between Victoria, of which Melbourne is the capital, and neighbouring states closed on Tuesday.
Prime Minister Scott Morrison paid tribute to Melburnians' resilience on Wednesday.
"The rest of the country knows that the sacrifice that you're going through right now is not just for you and your own family, but it's for the broader Australian community," he said during a news conference.
Mr Morrison also said he was proposing measures to slow the return of Australian nationals from overseas.
Victoria State Premier Daniel Andrews announced the Melbourne lockdown on Tuesday after the state saw 191 new infections, its highest daily number since the pandemic began.
Wednesday's figure was down to 134, but still much higher than numbers in the rest of the country.
Australia has recorded almost 9,000 cases and 106 deaths from the virus.
Meanwhile, Australian media reported that passengers on a flight from Melbourne to Sydney disembarked on Tuesday night without being screened.
New South Wales state has banned travel from the greater Melbourne area except under exceptional circumstances, and the passengers should have been required to self-isolate for two weeks.