English was introduced in Australia by the first British settlers and convicts at the end of the eighteenth century. However, quite often when we hear or read about Australian English it is easy to get the impression that the vocabulary is very different from any other form of English, but according to the Macquarie Dictionary (2003) most of the vocabulary in Australian English is the same as in British English. The vocabulary is always changing in a language. Some words maintain the same form but shift their primary meaning, while the meanings of others become either extended or narrowed. Word meaning may also be altered through amelioration and perjoration, that is, they may take on positive or negative connotations. When the existing vocabulary is not sufficient, new words have to be created to fill the gap. There are several ways to create new words using already existing ones such as compounding, functional shift, derivation and shortening. Another way of introducing new words into the language is to borrow from other languages. All of these processes have taken place in the lexicon of Australian English with the result that it has diverged somewhat from that of British English. In this paper I will discuss both the historical background and linguistic processes which underlie some of the vocabulary variation in present day Australian and British English. Accordingly, I will look at a number of words that are used differently in these two varieties of English, as well as some words which appear only in Australian English.