The funding, under the Capability and Technology Demonstrator Program, will be managed by the Defense Science and Technology Organization.
"The program supports Australian industry to develop and demonstrate new technologies that could contribute to defense capability," Minister for Defense Science and Personnel Warren Snowdon said.
"Eight technology proposals have been selected this year to demonstrate possible defense applications. By supporting these proposals, we create the potential to advance defense capability, produce innovative products for defense and civilian use and stimulate Australian industry growth."
Snowdon made the announcement at the University of Sydney's School of Electrical and Information Engineering will use developments in photonic signal processing to enhance the detection of small and fast-moving targets.
"It (the project) aims to increase the electronic warfare capability of our Anzac class frigates," he said.
Other projects being funded include development of an enhanced protection combat helmet, a system to give helicopter crews better vision in inclement weather and a capability to protect electronic warfare systems from electronic interference.