Authors and publishers will be paid when libraries hold their e-books and audiobooks as part of the federal government's upcoming national cultural policy.
The $12.9 million move extends Australia's existing lending rights schemes to include digital content, making it one of a handful of countries in the world to include them.
Arts Minister Tony Burke said authors will be paid the same way they are when libraries hold their physical books.
"The law has not kept up to date. That's why we're changing it - to ensure that Australian authors, writers and publishers are properly compensated for their work," Mr Burke said.
"Australia's new national cultural policy will ensure that artists are treated fairly as workers and properly paid for it."
The national cultural policy will be launched on Monday following a consultation process that attracted more than 1200 submissions, about 10 per cent of them from writers.
A recent Macquarie University survey of Australian writers found they earned $18,200 a year on average from their creative output.
According to the Australian Society of Authors, most are unable to make a living from their work.
The society's chief executive Olivia Lanchester welcomed the changes.
"We're delighted because we've pushed hard for this expansion and to be honest, it is sorely needed," she told AAP.
The society has also called for a national plan and funding for Australian literature, tax reforms to support creators and minimum standards for Australian content in schools.
It's not yet clear whether these measures will also form part of the cultural policy but the government has promised the lending rights changes are the first of several measures.
One of more than 150 writers who participated in the consultation process, children's author Meg McKinlay, said lending rights made up about a quarter of her total annual income.
The lending rights scheme was introduced by the Whitlam government in 1974 to compensate authors and publishers when their work was accessed for free in libraries but had only applied to printed works.
