Contrary to popular myth, there was little opposition to these demands from the colonial governors or the Colonial Office in London, although there was some from the squatters. New South Wales had already had a partly elected Legislative Council since 1825. The Eureka Stockade, an armed protest by miners on the Victorian goldfields, and the debate that followed, served as a significant impetus for democratising reforms. In 1855 New South Wales, Victoria, South Australia and Tasmania (as Van Diemen's Land was renamed) were granted full responsible government, with bicameral parliaments in which the lower houses were fully elected. The upper houses (Legislative Councils) remained dominated by government appointees and representatives of the squatters, worried that the radical democrats might try to seize their vast sheep-runs. Their fears were partly justified, with the Selection Acts of the 1860s, in particular the Robertson Land Acts of 1861, beginning the slow breakup of the squattocracy in Australia's more settled areas.
The gold rushes and the rapid expansion in settlement which followed were a catastrophe for the indigenous Australians. Between first European contact and the early years of the 20th century, the Aboriginal population dropped from an estimated 500,000 to about one tenth of that number (50,000). Many were killed outright with gun or poison, a great many more were starved to death by European conquest of their lands, but by far the most significant killer was European disease. Smallpox, measles, and influenza were major killers, many others added their toll - for a people without the thousands of years of genetically evolved resistance to diseases that Europeans had, even chickenpox was deadly. Of the 90% of the Aboriginal population that died out as a result of European contact, it is estimated that around 80% or 90% of the deaths were the result of disease, and reasonable to suppose that the worst-hit peoples were the ones that lived in the most fertile areas, where population densities were highest.
The rapid economic expansion which followed the gold rushes produced a period of prosperity which lasted forty years, culminating in the great Land Boom of the 1880s. Melbourne in particular grew rapidly, becoming Australia's largest city and for a while the second-largest city in the British Empire: its grand Victorian buildings are a lasting reminder of the period. The traditional craft of Stonemasons in Melbourne were the first organised workers in the Australian labour movement and in the world to win an eight-hour day in 1856. Melbourne Trades Hall was opened in 1859 with Trades and Labour Councils and Trades Halls opening in all cities and most regional towns in the following forty years. During the 1880s Trade unions developed among shearers, miners, and stevedores (wharf workers), but soon spread to cover almost all blue-collar jobs. Shortages of labour led to high wages for a prosperous skilled working class, whose unions demanded and got an eight-hour day and other benefits unheard of in Europe. Australia gained a reputation as "the working man's paradise." Some employers tried to undercut the unions by importing Chinese labour. This produced a reaction which led to all the colonies restricting Chinese and other Asian immigration. This was the foundation of the White Australia Policy. The "Australian compact", based around centralised industrial arbitration, a degree of government assistance particularly for primary industries, and White Australia, was to continue for many years before gradually dissolving in the second half of the 20th century.
The Great Boom could not last forever, and in 1891 it gave way to the Great Crash, a decade-long depression which created high unemployment, and ruined many businesses, and the employers responded by driving down wages. The unions responded with a series of strikes, particularly the bitter and prolonged 1890 Australian Maritime Dispute and the 1891 and 1894 shearers' strikes. The colonial ministries, made up for the most part of liberals whom the unions had long seen as allies, turned sharply against the workers and there were a series of bloody confrontations, particularly in the pastoral areas of Queensland. The unions reacted to these defeats and what they saw as betrayals by liberal politicians by forming their own political parties within their respective colonies, the forerunners of the Australian Labor Party. These parties achieved rapid success: in 1899 Queensland saw the world's first Labour Party parliamentary government, the Dawson Government, which held office for six days.
The industrial struggles of the 1890s produced a new strain of Australian radicalism and nationalism, exemplified in the Sydney-based magazine The Bulletin, under its legendary editor J F Archibald. Writers such as A B "Banjo" Paterson, Henry Lawson and (a little later) Vance and Nettie Palmer and Mary Gilmour promoted socialism, republicanism and Australian independence. This newfound Australian consciousness also gave birth to a profound racism, against Chinese, Japanese and Indian immigrants. Attitudes towards indigenous Australians during the period varied from the outright armed hostility seen in earlier times to a paternalistic "smoothing the pillow" policy, designed to "civilise" the last remnants of what was seen as a dying race (see White Man's Burden).
The 1890s depression (the most severe Australia had ever faced) made the inefficiencies of the six colonies seem ever more ridiculous, and, particularly in border areas, a push for an Australian Federation began. Other motives for Federation were the need for a common immigration policy (Queensland was busy importing indentured workers from New Caledonia, known as Kanakas, to work in the sugar industry: both the unions and the other colonies strongly opposed this), and fear of the other European powers, France and Germany, who were expanding into the region. British military leaders such as Horatio Kitchener urged Australia to create a national army and navy: this obviously required a federal government. It was also no coincidence that in the 1890s for the first time the majority of Australians, the children of the gold rush immigrants, were Australian-born.
The New South Wales Premier, Sir Henry Parkes, was the initial leader of the federation movement, but the other colonies tended to see it as a plot for New South Wales dominance, and an initial attempt to approve a federal constitution in 1891 failed. The cause was then taken up the Australian Natives Association and younger politicians such as Alfred Deakin and Edmund Barton. Following a federalist convention in Corowa in 1893, the colonies agreed to hold elections for a Federal Convention, which met in various cities in 1897 and 1898. A draft Constitution, largely written by the Queensland judge Sir Samuel Griffith was approved, and was put to referendums in the colonies in 1899 and 1900. New South Wales voters rejected the draft because it gave too much power to the smaller colonies, but eventually a compromise was reached.
Discussions between Australian and British representatives led to adoption by the British Government of an Act to constitute the Commonwealth of Australia late in 1900. The Colonial Secretary, Joseph Chamberlain, nearly derailed the whole process by insisting that British courts retain their jurisdiction over Australia. The Australians eventually reluctantly agreed to this. Queen Victoria of the United Kingdom gave her royal assent to the Commonwealth of Australia Constitution Act 1900 (Imp) on July 9 creating the Commonwealth and thus uniting the separate colonies on the continent under one federal government. The Act came into effect on January 1, 1901.