The region was hit with a total blackout when an "unprecedented" storm wrecked power transmission towers in 2016, and billionaire Musk in March offered to help with a battery farm.
"This system will be three times more powerful than any system on Earth," Musk told reporters in the state capital Adelaide.
Tesla has built the world's current largest battery, which came online in California in December, Musk said, adding that the South Australian battery would be 100 megawatts -- enough to power 30,000 homes.
"This is not a minor foray into the frontier... I'm pretty darn impressed with South Australia willing to do a project of this magnitude that is beyond anything else in the world," Musk said.
"That takes a lot of gumption... I do see this as something that the world will look at as an example."
The battery will be built in Jamestown, 230 kilometres (143 miles) north of Adelaide and will be paired with a nearby wind farm run by Neoen, a French renewable energy company, South Australian Premier Jay Weatherill said.
Tesla has agreed to deliver the battery "within 100 days or it is free", he added.
Neoen was set up in 2008 and has projects around the world, from Zambia to Egypt.
It operates Europe's biggest solar energy park in southwest France, which can produce the equivalent annual electricity to supply a town of 300,000 people.
South Africa-born Musk has envisaged Tesla as a company that can help reduce emissions by not only selling people electric cars, but also generating and storing the renewable energy that powers them.
Australia is one of the world's worst per capita greenhouse gas polluters due to heavy use of coal-fired power.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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