People from Indigenous, Asian, Middle Eastern, African, Pasifika, Maori and Muslim backgrounds also face high rates of racism, a landmark Australian Human Rights Commission report released on Tuesday found.
"Racism at university is not confined to isolated incidents or individual behaviour, it is systemic," Race Discrimination Commissioner Giridharan Sivaraman said.
"Racism is pervasive across the sector, affecting many groups in serious ways."
The discrimination damaged people's identity and self-esteem as well as their wellbeing and safety, he said.
More than 90 per cent of Jews and Palestinians reported experiencing racism due to their religion or ethnicity at university, according to the Racism@Uni Study, which surveyed more than 76,000 students and staff from 42 universities in September.
More than eight in 10 respondents from Indigenous, Chinese, Middle Eastern and northeast Asian backgrounds reported racism.
However, only six per cent of people made a complaint about the racism they suffered, with trust in the university process low.
The study's 47 recommendations included universities having a positive duty to stamp out racism, the creation of national and university-specific anti-racism plans and more reporting and transparency requirements.
Universities Australia labelled the findings deeply troubling, saying racism had no place at universities.
"No one should feel unsafe, diminished or excluded because of their culture, faith or background," the peak body said in a statement.
"Universities accept our responsibility to confront racism wherever it occurs.
"We will continue listening, learning and acting together to ensure our universities live up to the standards our communities rightly expect."
Noting institutions were bound to ensure academic freedom and freedom of speech, this could never be used to justify spreading harm or impacting another person's rights, Universities Australia said.
Education Minister Jason Clare flagged major changes as the federal government considers the report's recommendations.
"We'll comb through it and respond in due course," he told reporters in Brisbane.
"But one of (the recommendations) ... is to raise that standard that universities need to comply with.
"We've already said that we will do that, and that work's under way."
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