The Tomago aluminium smelter in the NSW Hunter region faced closure in 2028 due to forecasts of higher energy prices.
The smelter is the single largest electricity user in the nation and consumes about 10 per cent of power supplies in NSW.
The Australian Energy Regulator forecast energy contract prices to double by 2029.
Electricity accounts for more than 40 per cent of its operating costs and Tomago Aluminium warned it would not remain commercially viable if prices rise.
After months of negotiations, the NSW government and the Commonwealth have agreed to commit $2.5 billion to assist in entering into long-term energy contracts to in 2029.
Tomago Aluminium have agreed to invest a further $1.1 billion to decarbonise and upgrade its facilities to better adapt to fluctuations in renewable energy supply and demand.
Prime Minister Anthony Albanese said keeping the smelter operating was critical for Australia's manufacturing future.
"In December last year, I stood in the rain at Tomago and told the workers 'we have your back'," Mr Albanese said in a statement.
"Today, alongside the NSW government, we deliver on that promise."
Premier Chris Minns welcomed the agreement, in which NSW would contribute almost half the funding.
Mr Minns said the Hunter had been an industrial and manufacturing powerhouse with the agreement to make sure it remained so "for generations to come."
Tomago Aluminium produces up to 590,000 tonnes of aluminium a year.
Smelter chief executive Jerome Dozol warned in 2025 the facility would have to clos without government intervention on future energy prices from renewable and fossil fuel sources.
Tomago smelter majority owner Rio Tinto reported increasing profits of $6.9 billion in the first half of 2026.
It's the latest in a string of bailouts from state and federal governments for metal processing infrastructure.
The federal government has promised billions in propping up facilities including the Whyalla steelworks, Mount Isa copper smelter and the Boyne aluminium smelter in recent years.
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