The Abu Sayyaf group released Warren Rodwell, 54, last weekend.
He was taken at gunpoint in December 2011 from his houseboat home in Ipil in Zamboanga Sibugay province, the Philippines government announced on its official Philippines News Agency website.
Police spokesman Chief Insp. Ariel Huesca said Rodwell was freed around 1 a.m. Saturday in the fishing port of Pagadian City, the capital of the coastal Zamboanga del Sur region.
Zamboanga del Sur is on the Zamboanga Peninsula on the western shores of Mindanao Island, the second largest and southernmost island in the Philippines and home to the Autonomous Region for Muslim Mindanao.
Huesca said a civilian saw Rodwell walking along the port area of Pagadian City and took him to a local police station.
Filipino and Australian authorities welcomed the release of Rodwell but gave few details of discussions with rebels including whether the governments or Rodwell's family paid a ransom.
The PNA report said Rodwell's 28-year-old Filipino wife, Miraflor Gutang, sought the assistance earlier this month of Alrasheed Sakkalahul, vice governor of Basilan province within the Autonomous Region for Muslim Mindanao.
The Abu Sayyaf group originally demanded $2 million in exchange for Rodwell's freedom, PNA said.
Sakkalahul said Rodwell's family negotiated directly with the kidnappers, the PNA report. Sakkalahul also said he didn't know it there was a ransom paid or money handed over ostensibly for "board and lodging" since he wasn't involved.
But questions remain over the effectiveness of the Australian government's handling of the affair, a report by the Australian newspaper The Age said.
Rodwell's cousin Susan Lorainne-Ford said the Australian government helped negotiate but didn't provide money for a ransom.
The Age report said Bob East, an independent Australian academic researcher who holds a doctorate in International Peace and Conflict Studies, believed the Australian government did little to help Rodwell.
East told The Age that credit for Rodwell's release should go to the Philippines military. The army "could have gone in guns blazing with dire consequences," said East, whose book Terror Truncated: The Decline of the Abu Sayyaf Group, is published this month.
East said the Australian government "obviously co-operated with local officials" but he criticized Canberra for trying to impose a news blackout regarding negotiations.
Attention on Rodwell's situation, as well as several other foreigners believed still held by Abu Sayyaf, rose in December after a 2-minute video of him next to his suspected captors was posted on social media.
A tired and thin Rodwell was seen in front of a white blanket holding a newspaper dated Dec. 15.
A month later a photo was released showing Rodwell holding a newspaper dated Jan. 25 and Australia's Department of Foreign Affairs again requested a news blackout, The Age reported.
Several days before Rodwell's release, suspected Abu Sayyaf kidnappers released Malaysian fish merchant Pang Choon Pong, 48, after 17 months of captivity.
Police suspect a former business associate of Pang worked with Abu Sayyaf to kidnap the Malaysian on the island of Sulu, part of the autonomous region, in October 2011, The Inquirer newspaper reported.
Philippine police said the Abu Sayyaf have been holding Japanese treasure hunter Toshio Ito, 66, since 2010, The Age reported.
Abu Sayyaf also is holding Jordanian journalist Baker Atyani, 43, who traveled to Sulu province with two Filipino assistants in June 2012. Atyani went to Sulu to secretly film the Abu Sayyaf for a documentary on Al Arabiya News Channel.
Wildlife photographers Ewold Horn, 52, from Holland and Lorenzo Vinciguerre, 47, from Switzerland were kidnapped in February 2012 allegedly by a faction of the Moro National Liberation Front.