Since Indonesia declared its independence in 1945, Indonesia’s diplomatic relations with Australia have ups and downs. There are two issues that have raised the tension, first is Australia’s part of the liberation of East Timor from NKRI and recently was asylum provision from Australia to 42 Indonesians from Papua in March 2006. Indonesia responded to the problem of asylum provision by casting several protests showing their disappointment towards Australian asylum policies. The disappointment is also shown when President Yudhoyono had to called its Ambassador in Australia for questioning in regards to the policies. This study use the concept of Australian Government national interests on Papua related to the asylum consent to 42 Indonesians from Papua, and the concept of territorial asylum consent by Australia viewed from the international law perspective. This study used a qualitative descriptive approach. These methods will assist the researcher in gaining profound understanding on the impact of asylum provision to the Indonesia-Australia diplomatic relations, using liberalism theory. Indonesia’s response towards Australia's asylum policy and the efforts of both countries to improve their fragile diplomatic relations can be explained with the international regimes and the international society theory. The data used in this study is obtained from academic literature such as books, journals (national and international), internet media and from written interview with the Head Section of Timor-Leste & New Zealand, East Asia and Pacific Directorate, Indonesian Foreign Affair Minister. The result of this study shows that Australia's asylum policies to 42 citizens from Papua bring a positive impact on Indonesia. Evidently, Indonesia received formal recognition from the Australian government in regards to Papua deliverance on NKRI and the formation of security agreement between Indonesia-Australia, which become the solution for the issue of Australia’s asylum policies.