Muslims in Australia are from a range of cultural and language groups. In spite of their long presence in Australia, research on this population is a recent development. The information that is emerging indicates that, in general, acculturation process is not problematic for the majority of Muslims. Most of them integrate well and report a blended identity. They value Australian institutions and contribute to the society in all spheres of life. However, acculturative stress has also emerged in the form of language barriers, employment challenges, financial disadvantages, and marginalization. These challenges have been associated with widespread negativity toward Muslims as a result of domestic and international terrorist attacks. Further, an adverse portrayal of Muslims in the media has contributed to the development of prejudices and Islamophobia among non-Muslim Australians, leading to discrimination and strained relations between the two groups. Although there is an ongoing attempt to repair relations between Muslims and the larger society in Australia, more effective strategies are required. Suggestions for stakeholders are discussed.