The MRH-90 Taipan helicopter went down at about 10.30pm on Friday, Defence Minister Richard Marles confirmed.
A search is under way to find the crew, and their families have been notified.
The aircraft was involved in Exercise Talisman Sabre, a training operation that involves defence forces from Australia, the United States and other allies.
Mr Marles said the missing helicopter was taking part in a mission that involved a second chopper, which immediately started a search and rescue operation.
"Defence exercises which are so necessary for the readiness of our defence force are serious, they carry risk," he told reporters on Saturday in Brisbane.
"As we desperately hope for better news during the course of this day we are reminded about the gravity of the act which comes with wearing our nation's uniform."
Chief of the Defence Force General Angus Campbell said Queensland authorities, members of the public and US personnel were taking part in the search.
"Our focus at the moment is finding our people and supporting their families and the rest of our team, this is indeed a terrible moment," he said.
A CQ Rescue crew spotted debris near Dent Island early on Saturday morning.
It is the second time an Australian MRH-90 has been involved in an emergency this year, after a Taipan ditched into waters off the NSW south coast in March.
The chopper was taking part in a night-time counter-terrorism training exercise when it ran into trouble and ten people had to be rescued.
The Taipan helicopter has earned a reputation as unreliable in recent years, with malfunctions and technical issues forcing several groundings of Australia's fleet.
The bulk of Talisman Sabre exercises are being held in regional Queensland.
Earlier in July, a US Army tank was caught up in a fiery crash near Rockhampton that left six people in hospital.
15°C