Instead of traditional minaret towers and domes, the modern building will have a glass front allowing the general public to see straight into the prayer hall.
Under construction at Newport in Melbourne's western suburbs, it is due to be completed early next year.
Architect Glenn Murcutt said he did not want to reproduce a Middle Eastern mosque.
"To go through a wall and a door becomes exclusive. I felt it was necessary for Islam to become much more open," he said.
Local designer Hakan Elevli said the community wanted more openness and transparency.
"They wanted to create a structure, a beautiful space that people can worship but also a space non-Muslims can come in and see what happens in this space."
The traditional features are replaced by coloured glass lanterns, which will reflect different coloured light into the prayer hall, depending on the time of day.
"During midday prayer you'll get the green light coming through, the night prayer you'll have the red light and the morning you'll get the gold."
Younger Muslims support the project
While some older members of the community were initially reluctant to adopt the new design, the younger Muslim community drove the change.
"We get questioned all the time about it but as soon as they see it, they walk in and see the beauty of the building, they understand," builder Mohammed Haddara said.
"The purpose is to build a project that is from the Muslim community to the Australian community."
Funded by the local Muslim community, it will include a library and restaurant.
It is hoped the project will help to ease tensions in the wider community.
"This country has been made up of the beauty cultures have contributed to the nation — why would Islam not be another one of these contributors? I think there's no question there's a real bigotry that's terrible and embarrassing," Mr Murcutt said.
The mosque's plans and design process can be seen at the National Gallery of Victoria in Federation Square.