The cultural centre, promised at last year's state election, will be built behind the Perth Concert Hall on the banks of the Derbarl Yerrigan, or Swan River.
Announcing the location on Monday, Premier Mark McGowan said the "world-class" facility would celebrate the richness and diversity of Indigenous culture and provide tourists with authentic and immersive experiences.
The state and federal governments have each committed around $50 million to the centre, which is due to open in 2028.
Private funding will be sought to cover most of the cost, previously estimated at around $400 million, with stakeholders seeking a distinctive architectural design.
Mr McGowan said he had spoken to a number of major companies regarding financial support for the centre.
Labor's federal MP for Perth, Patrick Gorman, said he hoped the centre could rival global tourist attractions such as the Sydney Opera House.
"I really feel that this project can be Western Australia's answer to the Opera House. It can be that thing of grand scale," Mr Gorman told reporters.
The Terrace Rd site is state-owned land but it currently holds a City of Perth car park, the immediate fate of which is yet to be decided.
Whadjuk Cultural Authority representative Barry Winmar said the site had been a significant traversing ground between Matagarup and Kaarta Gar-up, also known as Heirisson Island and Kings Park.
"We want people to be able to have an on-country experience right here on the waterfront," he said.
"It gives us the opportunity to tell our stories ... and to showcase what our culture looks like in art, dance and through print and media."
Mr Winmar said he would be comfortable with mining companies helping to fund the centre despite their chequered history regarding Aboriginal cultural heritage.
"I think the big corporates, especially the mining and resources sector, have a big part to play in healing country," he said.
"If we can bring culture from the countries in which they operate and really exemplify that they are beautiful places to visit, I think it's their corporate social responsibility to be able to showcase that so we can get people back into the regions."
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