Authorities warned protesters on Monday that people risked getting arrested if they defied state COVID-19 health orders that limit outdoor gatherings to 500 people.
However, in a last minute compromise with police, thousands were allowed to gather in socially distanced groups in Sydney.
The arrested had breached peace or COVID-19 safety protocols or had altercations with police.
Protests are held annually on Australia Day, the country's national day and anniversary of the arrival of the British First Fleet in 1788.
For many Indigenous Australians, who trace their lineage on the continent back 50,000 years, the Australia Day holiday is known as Invasion Day symbolizing the destruction of their cultures by European settlers.