The 'two-party system' is a term used to describe a political system where two major political parties dominate because they receive the majority of the electoral vote. One of the two parties typically holds a majority in the legislature and forms government while the other is the opposition.
Technically, Australia does not have a two-party system as there are currently three major parties involved in government and opposition. The current government is a coalition (partnership) of the Liberal Party of Australia and The Nationals, while the Australian Labor Party is in opposition.
There are many political parties represented in the federal Parliament. Depending on the outcome of a federal election, any number of parties could agree to form a coalition in either government or opposition.