A two-month paid leave starts Dec. 3.
Defense Minister Joel Fitzgibbon says the break is a chance for Australia to say thank you to its sailors and make the service more family friendly.
All navy ships not on operational deployments have been ordered home for Christmas.
Skeleton crews will provide security during the holiday break.
A shortage of personnel is the biggest challenge facing Australia's military.
Officials hope the two-month paid vacation will help with recruitment.