Prime Minister Scott Morrison announced on Sunday that the funding would cover free counselling sessions, health consultations and rebates for 10 psychological therapy sessions via Medicare, Australia's universal public healthcare system, Xinhua reported on Monday.
"These bushfires have been unprecedented in their scale, coverage and duration," he said.
"They have also taken a traumatic emotional toll on our people. We need to ensure the trauma and mental health needs of our people are supported in a way like we never have before."
At least 28 people have died and more than 2,000 homes have been destroyed across the country in bushfires.
"We know that trauma and tragedy are deeply linked with mental health impacts and what we're seeing now is that people are in the early phases of recovery and response," Health Minister Greg Hunt said.
"Initial early treatment for mental health can make a very significant long-term difference.
"But even then, in three or six months, post-traumatic stress can emerge, and so early action is vitally important but also to be there over the medium and the long term."
An inquiry into the 2009 Black Saturday bushfires, the most deadly bushfires in Australian history, found that mental health impacts persisted for five years after the disaster for some victims.
Christine Morgan, the head of the National Mental Health Commission, welcomed the funding announcement.
"This is a particularly distressing time for everyone across the country," she told News Corp Australia.
"Because of this, it is important that the mental health and wellbeing of Austral is supported immediately, as well as providing ongoing long-term interventions."
( With inputs from IANS )