The capital of Australia is Canberra, which is located in a federal territory (similar to Washington, D.C.) within the Australian state of New South Wales. When Australia was founded in 1901, both Sydney and Melbourne wanted to become the capital city. In 1908 it was ultimately decided that a brand-new capital city would be built and located away from the coast. Canberra is the largest city in Australia that is not on the coastline (population 334,000).