The winner of the tournament, which starts on 16 January, will receive AUS$3.7m (£2.2m) — AUS$300,000 more than last year's winner Novak Djokovic was paid.
The biggest beneficiaries of the increase, however, will be those who leave Melbourne in the early rounds.
As part of a bid to tackle match-fixing, the tournament has boosted the prize money paid to first-round losers by 39 per cent to AUS$50,000.
Players at the lower levels of professional tournaments, were prize money is significantly smaller than the earnings enjoyed by the top 50, are believed to be targets of match fixers.
"Compensation of this magnitude recognises the elite level these athletes have achieved and allows them to invest more in their own careers, which includes funding their own travel, coaches and conditioning expenses," said tournament director Craig Tiley.
"It was especially important for us to increase the competition for players in the early rounds and qualifying and this year we have made some real gains.
"We are constantly reviewing ways to improve the life of every player on tour, not just the top 100. This includes increasing prize money as well as removing as many costs as possible associated with playing our events.
"Our aim is to shift the break-even point for professional players, to ensure that tennis is a viable career option for the best male and female athletes in the world."
Roger Federer, Rafael Nadal and Serena Williams following injury lay-offs.
The Australian Open's top prize has always evaded world No1 Andy Murray who has been a defeated finalist on five previous occasions.