From community heroes to advocates and Indigenous leaders, finalists from across the country gathered in Canberra ahead of an awards ceremony on Wednesday night.
Mr Albanese met the 32 finalists during morning tea at The Lodge.
"You are a vivid snapshot of the greatness of our modern nation," the prime minister said.
"For all the variety of your endeavours, you are united by a common determination to use your talents to work for the good of others.
"Every one of you would be a worthy winner because you are, already, great Australians."
The prime minister also thanked the 2022 Australians of the Year Dylan Alcott, Valmai Dempsey, Daniel Nour and Shanna Whan for their service.
He said they had set a high bar for the 2023 winners and he hoped to continue working with them in the future.
"(Australian of the Year awards are) an honour and a challenge. A reward and a responsibility," Mr Albanese said.
"It's to your eternal credit that each of you answered that call with such passion and enthusiasm and endless good humour."
The 2023 finalists include human rights activist Craig Foster, migrant leader John Kamara, Indigenous musician William Barton, insect farming pioneer Olympia Yarger, documentary maker Taryn Brumfitt, land council chair Samuel Bush-Blanasi, paediatrician Angraj Khillan and end-of-life care advocate Samar Aoun.
This year also marks the 20th anniversary of the inclusion of the Local Hero award, which recognises the work of community leaders across the country.
Among the finalists for the award is Victorian Belinda Hill, the founder of Mums of the Hills, an organisation that helps connect mothers in the Yarra and Dandenong ranges region.
"We founded it to make sure that there is proper connection for mums throughout their entire journey as a mother, either being pregnant, right through to being grandparents," she told AAP.
"We also provide opportunities to respond, to prepare and recover from natural disasters."
WA Local Hero nominee James Murphy started up the Town Team Movement as a way to inspire people to improve their communities.
The movement has more than 110 teams helping to foster connections within local areas through events like street festivals, working bees and food co-ops.
"People are becoming a lot more cognisant of the importance of being connected with others," Mr Murphy said.
"Any sort of local network that you can tap into in your local community is of benefit to a better life overall."
The Northern Territory's Young Australian of the Year finalist Jahdai Vigona has been recognised for his role as an Indigenous community leader.
The Tiwi Islands man helps to run mental health education programs within schools.
"It makes me really proud actually, just to know that there's so many like-minded people like myself who are wanting to help the world around them and make an impact and change it for the better," he said.
"I also advocate for young people to have opportunities, to make sure that they look after their health and making sure that those opportunities have been supported in the NT."
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