Main article: Immigration Restriction Act 1901

The new Federal Parliament, as one of its first pieces of legislation, passed the Immigration Restriction Act 1901 to "place certain restrictions on immigration and... for the removal... of prohibited immigrants". The Act drew on similar legislation in South Africa. Edmund Barton, the prime minister, argued in support of the Bill with the following statement: "The doctrine of the equality of man was never intended to apply to the equality of the Englishman and the Chinaman."^[12]

The Attorney General tasked with drafting the legislation was Alfred Deakin. Deakin supported Barton's position over that of the Labor Party in drafting the Bill (the ALP wanted more direct methods of exclusion than the dictation test) and redacted the more vicious racism proposed for the text in his Second Reading of the Bill.^[13] In seeking to justify the policy, Deakin said he believed that the Japanese and Chinese^[14] might be a threat to the newly formed federation and it was this belief that led to legislation to ensure they would be kept out:

Early drafts of the Act explicitly banned non-Europeans from migrating to Australia but objections from the British government, which feared that such a measure would offend British subjects in India and Britain's allies in Japan, caused the Barton government to remove this wording. Instead, a "dictation test" was introduced as a device for excluding unwanted immigrants. Immigration officials were given the power to exclude any person who failed to pass a 50-word dictation test. At first this was to be in any European language, but was later changed to include any language. The tests were written in such a way to make them nearly impossible to pass. The first of these tests was written by Federal MP Stewart Parnaby as an example for officers to follow when setting future tests. The "Stewart" test was unofficially standardised as the English version of the test, due to its extremely high rates of failure resulting from a very sophisticated use of language.^[16] While specifically asked by Barton to carry out this task, Parnaby allegedly shared similar views to Donald Cameron despite never publicly admitting so ^{citation required}.

The legislation found strong support in the new Australian Parliament, with arguments ranging from economic protection to outright racism. The Labor Party wanted to protect "white" jobs and pushed for more explicit restrictions. A few politicians spoke of the need to avoid hysterical treatment of the question. Member of Parliament Bruce Smith said he had "no desire to see low-class Indians, Chinamen or Japanese...swarming into this country... But there is obligation...not (to) unnecessarily offend the educated classes of those nations"^[17] Donald Cameron, a Free Trade Party member from Tasmania, expressed a rare note of dissention:

Outside parliament, Australia's first Catholic cardinal, Patrick Francis Moran was politically active and denounced anti-Chinese legislation as "unchristian".^[19] The popular press mocked the cardinal's position and the small European population of Australia generally supported the legislation and remained fearful of being overwhelmed by an influx of non-British migrants from the vastly different cultures of the highly populated empires to Australia's north.