The contract for 12 attack-class submarines is with France's Naval Group, a consortium with state backing, and has been years in the making.
It is Australia's largest ever defence procurement project and the largest ever foreign sales deal by French shipbuilder Naval Group.
The first submarine is expected to be finished in the early 2030s.
Critics say that is too late: the waters to Australia's north and east are the scene of an intense struggle between the United States, China and regional powers, who are all vying for influence.
Australian military analysts hope the subs will allow the country to maintain a credible deterrent against possible hostile actions.
The ceremony took place in the shadow of a memorial to US forces in front of the Australian defence offices in Canberra.
"It takes a lot of confidence for Australia to bet on France and a lot of confidence for France to share with Australia the capability that is so close to the core of our sovereignty and our strategic autonomy and a result of immense investment over decades," Parly said.
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