The package was signed at the Council of Australian Governments' meeting on Friday and should result in an additional 375,000 students being able to complete qualifications over the next five years.
It is hoped it will help more Australians get the training they need to get a job, change careers, or up-skill and get a better-paying job.
Key elements of the $1.75 billion package are giving working age Australians guaranteed access to a government subsidised training place and the expansion of income-contingent loans to subsidise higher level qualifications in the vocational education and training system.
Friday's reforms are expected to provide industry with a better qualified and flexible workforce and assist in meeting skills shortages in key areas of the economy.
Skills Australia estimates that in the five years to 2015, Australia will need an additional 2.1 million people in the workforce with VET qualifications.
As part of the deal, the federal government will provide almost $9 billion of funding to the states and territories over the next five years.