Australian students will undertake work-integrated-learning with industry and business organisations in Europe, while European students will do the same in Australia through a co-operative programme being established by Melbourne's Swinburne University of Technology.
The programme will enable Swinburne students to study and work in Britain, Germany, Sweden, Finland, Italy or Spain for three months, as well as allow students from universities in these countries to come to Australia.
Kate Nolan, Swinburne's convenor of European studies, said it was hoped more than 50 companies would be involved within three years.
Currently, 110,000 European students were undertaking university study outside their country of origin and the Australian government had targeted Australian education as one of its five main industry sectors for export to Europe.
University students who participate in industry-based learning as part of their degrees perform academically, on average, a grade above the scores they earn in their first year, according to Murray Gillin, president-elect of the World Association for Co-operative Education.
Professor Gillin, pro vice chancellor at the Swinburne University, said research carried out in Australia and overseas showed that students achieving credit level marks when they started their courses were gaining distinctions after taking part in industry experience.
Students also benefited in other ways by undertaking workplace studies. Many were offered jobs during the placement while all had much more appeal to employers than students with no workplace experience.
Co-operative education has now been adopted by 10 universities across Australia as well as being part of many technical and further education courses. Students typically spend 12 months working for wages in relevant industries and businesses during their courses.
Professor Gillin says the aim is to "integrate in a holistic fashion the concept of learning by experience".
Research into the impact of co-operative education on the career development of engineering students after five years in employment showed they had significantly higher levels of job satisfaction than other graduate engineers.
Australian companies are increasingly investing in co-operative education through the provision of scholarships and other assistance to students because it reduces their recruiting and training costs while providing people who were more compatible with their organisations.
Co-operative education also plays a significant role in helping develop Australia's intellectual and practical export base, Professor Gillin said.