Immigration Minister Chris Bowen said Australia's assimilation of different cultures was "genius" because it encourages immigrants to integrate as citizens rather than behave simply as "guest workers".
"To me, multiculturalism is a bit like a marriage. It has its stresses and strains," Bowen told the conservative Sydney Institute think-tank late on Wednesday.
"We have to remind each other occasionally that we are better off with each other. It takes nurturing; it takes care.
"It is in that spirit tonight that I quite proudly proclaim that Australian multiculturalism has worked.
"That not only has Australia benefited from the immigration of those who come from diverse backgrounds, but we have also benefited from the cultures they have brought and sustained in this, their new homeland."
Bowen's strident defence comes after British Prime Minister David Cameron called for a "muscular liberalism" to force the country's diverse population to coexist more closely as a society.
Chancellor Angela Merkel last year declared that German multiculturalism has "utterly failed", while French President Nicolas Sarkozy also called his country's policies a "failure".
The debate in Europe has heated up in recent years with the onset of homegrown Islamic extremism, but Bowen said some countries had deeper-rooted problems.
"Germany has regarded immigration as an economic necessity. A requirement for guest workers has driven an economic immigration policy," he said.
"Never has a German government proposed a policy of respect for existing cultures where they do not clash with basic German values."
He added: "France's resistance to a formal policy of multiculturalism has not encouraged greater integration of immigrant societies but, on the contrary, it has bred resentment, separatism and violence."
Australia has absorbed generational waves of immigrants, from Chinese during the 1800s Gold Rush to Vietnamese, Italians, Greeks, Eastern Europeans and finally large numbers of Indian students in the past few years.
But immigration remains a political flashpoint with intense debate over the steady arrival of rickety boats carrying asylum-seekers from poor countries.
On Thursday, conservative opposition immigration spokesman Scott Morrison faced calls to resign after he reportedly urged the shadow cabinet to play on fears over Muslim migrants in its attacks on the government.
Australia has an uneasy relationship with its Islamic community. Sydney's Cronulla Beach saw riots in 2005 when mobs of whites attacked Lebanese Australians in a bid to "reclaim the beach".
Dozens of Muslim men have been jailed in Australia under strict anti-terrorism laws which also saw the wrongful imprisonment of an Indian-born doctor following failed attacks in London and Glasgow in 2007.
Bowen said it was "inevitable" that Muslim migration would be questioned "in the age of concern about terrorism inspired by extremist Islam" and condemned "values such as Sharia law or religious intolerance or violence".
"It is right for Australians to be concerned about extremism, whether Islamic or otherwise," he said.
Australia was also engulfed in controversy in 2009, when a spate of attacks and robberies targeting Indian students drew street protests in Sydney and Melbourne and accusations of racism in Indian media.
But its patchwork society remains generally harmonious, despite occasional flare-ups. Last week, TV personality Eddie McGuire was condemned for calling diverse western Sydney the "land of the falafel".