Tabcorp and Tatts Group - the country's largest non-casino gambling firms - hope to form a business worth A$11.3bn ($7.1bn; Â£8.7bn).
But the deal needs to be scrutinised by regulators and approved by shareholders of both companies.
Betting is a national obsession in Australia, making it one of the world's most lucrative gambling markets.
It has the world's highest gambling loss per head, according to UK consultancy H2 Gambling Capital, with Australians losing an average of US$1,130 (Â£918) a year.
As well as running traditional sports betting facilities, often found in bars and clubs, Tabcorp and Tatts also have businesses including state lotteries and slot machines, known locally as pokies.
Both businesses saw profits fall last year, after the deregulation of gambling licences in Australia allowed an influx of competition from international bookmakers.
"In today's rapidly changing landscape, bringing together our businesses will create a strong and diversified business that is well placed to invest, innovate and compete, both in Australia and globally," said Tabcorp chairman Paula Dwyer.
The Australian Competition and Consumer Commission has already flagged "major concerns" about the deal.
Two of Australia's biggest bookmakers plan to merge, as they try to compete against the rise of online betting.