Since existing residential buildings are a significant global contributor to energy consumption and greenhouse gas (GHG) emissions, any serious effort to reduce the actual energy and carbon emissions of the building sector should explicitly address the carbon mitigation challenges and opportunities in the building stock. This research investigates environmentally and economically sustainable retrofit methods to reduce the carbon footprint of existing residential buildings in the City of Greater Dandenong as a case study in Metropolitan Melbourne, Australia. By categorizing energy use into various building age brackets and dwelling types that align with changes in energy regulations, we identified various retrofit prototypes to achieve a targeted 6.5-star and 8-star energy efficiency rating (out of a maximum 10-star rating system). The corresponding operational energy savings through different retrofit options are examined while also considering the quantity of materials required for each option, along with their embodied energy and GHG emissions, thus allowing a more comprehensive lifecycle carbon analysis and exploration of their financial and environmental payback times. Results show that when buildings are upgraded with a combination of insulation and double-glazed windows, the environmental benefits rise faster than the financial benefits over a dwelling’s lifecycle. The size or percentage of a particular dwelling type within the building stock and the remaining lifecycle period are found to be the most important factors influencing the payback periods. Retrofitting the older single detached dwellings shows the greatest potential for lifecycle energy and carbon savings in the case suburb. These findings provide households, industry and governments some guidance on how to contribute most effectively to reduce the carbon footprint of the residential building sector.