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The Australian Democrats is a centrist Founded in 1977 from a merger of the Australia Party and the New Liberal Movement, both of which were descended from Liberal Party dissenting splinter groups, it was Australia's largest minor party from its formation in 1977 through to 2004 and frequently held the balance of power in the Senate during that time. In 2018 the Democrats merged with CountryMinded, a small, also unregistered agrarian political party, and later that year the party's constitution was radically rewritten to establish "top down" governance and de emphasize the principle of participatory democracy. On 7 April 2019 the party regained registration with the Australian Electoral Commission. As of 2022, the national president of the party is former senator and parliamentary leader Lyn Allison.

The Australian Democrats were formed on 9 May 1977 from an amalgamation of the Australia Party and the New Liberal Movement. The two groups found a common basis for a new political movement in the widespread discontent with the two major parties. Former Liberal minister Don Chipp agreed to lead the new party. At the 1977 election, the Australian Democrats secured two seats in the Senate with the election of Colin Mason (NSW) and Don Chipp (VIC), though Haines lost her seat in South Australia. At the 1980 election, this increased to five seats with the election of Michael Macklin (QLD) and John Siddons (VIC) and the return of Janine Haines (SA). Thereafter they frequently held enough seats to give them the balance of power in the upper chamber. At a Melbourne media conference on 19 September 1980, in the midst of the 1980 election campaign, Chipp described his party's aim as to "keep the bastards honest"—the "bastards" being the major parties and/or politicians in general. This became a long lived slogan for the Democrats. In the event, Victorian Janet Powell was elected as leader and John Coulter was chosen as deputy leader.

The party's parliamentary influence was weakened in 1996 after the Howard government was elected, and a Labor senator, Mal Colston, resigned from the Labor Party. Since the Democrats now shared the parliamentary balance of power with two Independent senators, the Coalition government was able on occasion to pass legislation by negotiating with Colston and Brian Harradine. In October 1997, party leader Cheryl Kernot resigned, announcing that she would be joining the Australian Labor Party. (Five years later it was revealed that she had been in a sexual relationship with Labor deputy leader Gareth Evans). Kernot resigned from the Senate and was replaced by Andrew Bartlett, while deputy Meg Lees became the new party leader.

Under Lees' leadership, in the 1998 federal election, the Democrats' candidate John Schumann came within 2 per cent of taking Liberal Foreign Minister Alexander Downer's seat of Mayo in the Adelaide Hills under Australia's preferential voting system. The party's representation increased to nine senators, and they regained the balance of power, holding it until the Coalition gained a Senate majority at the 2004 election. Internal conflict and leadership tensions from 2000 to 2002, blamed on the party's support for the Government's Goods and Services Tax, was damaging to the Democrats. Opposed by the Labor Party, the Australian Greens and independent Senator Harradine, the tax required Democrat support to pass. In an election fought on tax, the Democrats publicly stated that they liked neither the Liberal's nor the Labor's tax packages, but pledged to work with whichever party was elected to make theirs better. They campaigned with the slogan "No Goods and Services Tax on Food". In 1999, after negotiations with Prime Minister Howard, Meg Lees, Andrew Murray and the party room senators agreed to support the A New Tax System legislation with exemptions from goods and services tax for most food and some medicines, as well as many environmental and social concessions. Five Australian Democrats senators voted in favour. However, two dissident senators on the party's left, Natasha Stott Despoja and Andrew Bartlett, voted against the GST. The decision to pass the GST was opposed by the majority of the Democrats' members, and in 2001 a leadership spill saw Lees replaced as leader by Stott Despoja after a very public and bitter leadership battle. Despite criticism of Stott Despoja's youth and lack of experience, the 2001 election saw the Democrats receive similar media coverage to the previous election. Despite the internal divisions, the Australian Democrats' election result in 2001 was quite good. However, it was not enough to prevent the loss of Vicki Bourne's Senate seat in NSW. The 2002 South Australian election was the last time an Australian Democrat would be elected to an Australian parliament. Sandra Kanck was re elected to a second eight year term from an upper house primary vote of 7.3 percent. Resulting tensions between Stott Despoja and Lees led to Meg Lees leaving the party in 2002, becoming an independent and forming the Australian Progressive Alliance. Stott Despoja stood down from the leadership following a loss of confidence by her party room colleagues. It led to a protracted leadership battle in 2002, which eventually led to the election of Senator Andrew Bartlett as leader. While the public fighting stopped, the public support for the party remained at record lows. On 6 December 2003, Bartlett stepped aside temporarily as leader of the party, after an incident in which he swore at Liberal Senator Jeannie Ferris on the floor of Parliament while intoxicated. The party issued a statement stating that deputy leader Lyn Allison would serve as the acting leader of the party. Bartlett apologised to the Democrats, Jeannie Ferris and the Australian public for his behaviour and assured all concerned that it would never happen again. On 29 January 2004, after seeking medical treatment, Bartlett returned to the Australian Democrats leadership, vowing to abstain from alcohol.

Following internal conflict over the goods and services tax and resultant leadership changes, a dramatic decline occurred in the Democrats' membership and voting support in all states. Simultaneously, an increase was recorded in support for the Australian Greens who, by 2004, were supplanting the Democrats as a substantial third party. The trend was noted that year by political scientists Dean Jaensch et al. Support for the Australian Democrats fell significantly at the 2004 federal election in which they achieved only 2.4 per cent of the national vote. Nowhere was this more noticeable than in their key support base of suburban Adelaide in South Australia, where they received between 1 and 4 percent of the lower house vote; by comparison, they tallied between 7 and 31 per cent of the vote in 2001. No Democrat senators were elected, though four kept their seats due to being elected in 2001, thus their representation fell from eight senators to four. Three incumbent senators were defeated: Aden Ridgeway (NSW), Brian Greig (WA) and John Cherry (Qld). Following the loss, the customary post election leadership ballot installed Allison as leader, with Bartlett as her deputy. From 1 July 2005 the Australian Democrats lost official parliamentary party status, being represented by only four senators while the governing Liberal National Coalition gained a majority and potential control of the Senate—the first time this advantage had been enjoyed by any government since 1980. On 28 August 2006, the founder of the Australian Democrats, Don Chipp, died. Former prime minister Bob Hawke said: " there is a coincidental timing almost between the passing of Don Chipp and what I think is the death throes of the Democrats." In November 2006, the Australian Democrats fared very poorly in the Victorian state election, receiving a Legislative Council vote tally of only 0.83%, less than half of the party's result in 2002 (1.79 per cent). The Democrats again had no success at the 2007 federal election, and lost all four of their remaining Senate seats. Two incumbent senators, Lyn Allison (Victoria) and Andrew Bartlett (Queensland), were defeated, their seats both reverting to major parties. Their two remaining colleagues, Andrew Murray (WA) and Natasha Stott Despoja (SA), retired. All four senators' terms expired on 30 June 2008—leaving the Australian Democrats with no federal representation for the first time since its founding in 1977. Later, in 2009, Jaensch suggested it was possible the Democrats could make a political comeback at the 2010 South Australian election, but this did not occur.

The Tasmanian division of the party was deregistered for having insufficient members in January 2006. At the 2006 South Australian election, the Australian Democrats were reduced to 1.7 per cent of the Legislative Council (upper house) vote. Their sole councillor up for re election, Kate Reynolds, was defeated. In July 2006, Richard Pascoe, national and South Australian party president, resigned, citing slumping opinion polls and the poor result in the 2006 South Australian election as well as South Australian parliamentary leader Sandra Kanck's comments regarding the drug MDMA which he saw as damaging to the party. In the New South Wales state election of March 2007, the Australian Democrats lost their last remaining NSW Upper House representative, Arthur Chesterfield Evans. The party fared poorly, gaining only 1.8 per cent of the Legislative Council vote. On 13 September 2007, the ACT Democrats (Australian Capital Territory Division of the party) was deregistered by the ACT Electoral Commissioner, being unable to demonstrate a minimum membership of 100 electors. These losses left Sandra Kanck, in South Australia, as the party's only parliamentarian. She retired in 2009 and was replaced by David Winderlich, making him (as of 2020) the last Democrat to sit in any Australian parliament. The Democrats lost all representation when Winderlich resigned from the party in October 2009. He sat the remainder of his term as an independent, and lost his seat at the 2010 South Australian election.

Following the loss of all Democrats MP's in both federal and state parliaments, the party continued to be riven by factionalism. In 2009 a dispute arose between two factions, the "Christian Centrists" loyal to former leader Meg Lees, and a faction comprising the party's more progressive members. The dispute arose when the Christian Centrist controlled national executive removed a website for party members from the internet, stating that its operation was a violation of the party constitution. In response, the progressive faction accused the national executive of being undemocratic and of acting contrary to the party constitution themselves. By 2012, this dispute had been superseded by another between members loyal to former Senator Brian Greig and members who were supporters of former South Australian MP Sandra Kanck. Brian Greig was elected the party's president, but resigned after less than a month due to frustration with the party's factionalism.

On 16 April 2015, the Australian Electoral Commission deregistered the Australian Democrats as a political party for failure to demonstrate the requisite 500 members to maintain registration. However, the party did run candidates and remain registered for a period of time thereafter in the New South Wales Democrats and Queensland Democrat divisions.

In November 2018 there was a report that CountryMinded, a de registered microparty, would merge with the Australian Democrats in a new bid to seek membership growth, electoral re registration and financial support. In February 2019, application for registration was submitted to the AEC and was upheld on 7 April 2019, despite an objection from the Australian Democrats (Queensland Division). The party unsuccessfully contested the lower house seat of Adelaide and a total of six Senate seats (two in each state of New South Wales, Victoria and South Australia) at the 2019 federal election. At the 2022 federal election one lower house seat (Eden Monaro) and three Senate seats were contested without success, polling fewer than 0.7% of first preference votes. The party polled fewer than 1.4% of first preference votes in the 2024 Dunkley by election.