The federal government will create a committee to investigate content people are exposed to online.
The joint standing committee is set to examine algorithms on social media platforms and how they determine what users see, as well as their impact on mental health.
Harmful content online such as extremist material and scams will be at the centre of the inquiry.
The decision of Facebook's parent company Meta to abandon deals with media companies to support public interest journalism will also be in focus.
The inquiry will look at Facebook parent company Meta's move to abandon deals with media companies. (Lukas Coch/AAP PHOTOS)
The committee's formation comes as the federal government has been at loggerheads with social media giants over the removal of violent content online following the stabbing of a church leader in Sydney in April.
Platforms such as X, previously known as Twitter, had refused to comply with take-down requests from the internet safety watchdog after the stabbing.
Communications Minister Michelle Rowland said social media companies had a responsibility to users to be accountable and transparent about their decisions.
"These social media companies have enormous reach and control over what Australians see with little to no scrutiny," she said.
"In our democracy, it is imperative that Australians have access to quality public interest journalism, including on social media."Â
Meta signalled in March it would not renew deals with Australian media outlets worth millions of dollars as part of the news media bargaining code.
The code was set up in 2021 to address power imbalances between news outlets and social media platforms that carried content from publishers.
Ms Rowland said the inquiry would be critical given the amount of misinformation on social media.
"Parliament needs to understand how social media companies dial up and down the content that supports healthy democracies, as well as the anti-social content that undermines public safety," she said.
"Establishing this inquiry will provide opportunity and resources for parliamentarians to closely scrutinise these companies and make recommendations on how we can make these platforms accountable for their decisions."
The government is expected to consult MPs and senators on the terms of reference for the committee, with a referral setting up the inquiry to be made in the next week.
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