The Australian Democrats was founded in 1977 following an amalgamation of the New Liberal Movement and the Australia Party. Don Chipp, previously a minister in the Holt and Gorton Liberal governments, was its first leader.

The Democrats aimed to achieve a balance of power in parliament and to exercise that power in line with policies determined democratically by its members. Many party policies addressed concerns about social and economic justice and environmental sustainability. In the lead-up to the 1980 Federal election Don Chipp described the Democrats’ aim as ‘to keep the bastards honest’, a phrase which became synonymous with the party.

Between 1980 and 2004 the Democrats held the balance of power between the two major parties, either solely or with others. In 1986 Don Chipp retired from parliament and was replaced by Janine Haines, the first woman to lead a political party in Australia. Since then the party has been led by a number of women, including Janet Powell, Cheryl Kernot, Meg Lees, Natasha Stott Despoja and Lyn Allison.

The 2007 federal election saw the Australian Democrats lose federal parliamentary representation, after the party failed to win a seat.