Turnbull claims the enhanced collaboration between state police and the ADF will allow "the ability for the ADF to be able to say to the police in certain circumstances, we can do something that you can't".
And State governments faced with terrorists who take hostages would be able to call on special forces units such as the Special Air Service Regiment immediately under the changes, introduced partly in response to criticism of the way NSW police handled the Lindt cafe siege in December 2014.
Australia's military will be able to take control on home soil during terror attacks under sweeping changes to national security.
Now defence forces can only be deployed if state police are unable to respond to the level of the threat.
The Sydney incident and a series of other "lone wolf" attacks have thrown police tactics and Australia's response to potential security threats, into sharp focus.
NEW powers to prevent suspected terrorists from leaving the scene of an incident. Elite special forces would have full legal authority to shoot and kill terrorists.
But he said if there was a protracted incident like the Lindt Cafe siege, the new rules would mean soldiers could be called in. "We must constantly review and update our responses to the threat of terrorism".
The Australian Defence Force has two tactical assault groups - one in Sydney and one in Perth - on standby to rapidly deploy to a terrorist attack.
Currently, governments have to wait until they know their own capability or capacity to respond has been exceeded before they can ask for assistance.
The prime minister unveiled a raft of changes on today, including having special forces provide specialised training to local police officers.
Defence Industry Minister Christopher Pyne earlier refused to be drawn on what might have happened had the changes been in place before then.
"There would only be limited circumstances in which the niche military capabilities that we have would be required", he said.
The proposed changes need parliament's approval.
The PM announced a plan to increase cooperation and shared training between State and Territory police and the Australian Defence Forces (ADF), and make it easier for the ADF to be deployed domestically during a terrorist attack.
Former SAS commander-turned federal MP Andrew Hastie has previously said the Sydney siege response demonstrated state police were "not up to the task" of dealing with the unique nature of Islamist terrorism.