The US president has agreed to stop attacking Iran for two weeks in exchange for the reopening of the economically critical Strait of Hormuz.
Iran's de facto closure of the narrow waterway has sent oil prices skyrocketing and thrown global supply chains into chaos.
The temporary deal, brokered by Pakistan, was a welcome development that would hopefully lead to a permanent end to hostilities, Anthony Albanese said.
"This is positive news, we've been calling for de-escalation for some time," he told Sky News on Wednesday.
But Mr Albanese criticised the US president's threat in the lead up to the ceasefire deal that a "whole civilisation will die tonight" if his terms were not met.
Mr Trump also said he'd target Iran's bridges and power plants if a deal was not reached.
"I don't think it's appropriate to use language such as that from the president of the United States and I think it will cause some concern," the prime minister said.
"The potential of damage to civilian infrastructure in Iran was an extraordinary statement to make."
Asked if attacks on civilian infrastructure would have constituted a war crime, Mr Albanese only said it was good to see an easing of hostilities.
"It's a long step between a tweet and that suggestion. What we have called for is a de-escalation, and that has occurred," he said.
The Pope and the head of the United Nations were among those who criticised Mr Trump's comments.
Energy Minister Chris Bowen struck a more cautious tone on the ceasefire agreement, warning Australians not to get ahead of themselves.
"We welcome progress, but I don't think we can say that the Straits of Hormuz are now open," he told reporters in Sydney.
"There's more work to be done."
Opposition Leader Angus Taylor said the ceasefire deal was a good development and would help bring down prices in Australia.
"The outcome that is an imperative here is that we have an opening up of the Strait of Hormuz, we have oil and refined products moving through, coming to Australia, putting downward pressure on prices," he said.
Asked about Mr Trump's threat, Mr Taylor said he wouldn't use the same language.
Earlier, Nationals leader Matt Canavan urged Australia to push back against the president's rhetoric.
"It's incumbent on us to implore our friends in the United States to de-escalate this and de-escalate it fast," he told ABC Radio.
"It's gotten out of hand very quickly, as these things often do ... now's the time for Australia to, and the prime minister, to make it very clear that we can't support this type of approach to any kind of conflict."
After the pause in fighting was announced, the Australian stock exchange shot up almost three per cent at the open, while the Australian dollar spiked to 70.75 US cents and oil prices plunged.
Mr Trump said he had received a 10-point plan from Iran aimed at ending the war, describing it as "workable".
"Almost all of the various points of contention have been agreed to between the United States and Iran, but a two-week period will allow the agreement to be finalised and consummated," he said in a post on his platform Truth Social.
