Scott Morrison wants to prevent religious Australians being "cancelled" for expressing their views under discrimination laws criticised as green lighting harmful speech.
The prime minister has declared faith and freedom inseparable as the coalition seeks to shield people who express beliefs even if they are considered socially disagreeable.
"People should not be cancelled or persecuted or vilified because their beliefs are different from someone else's in a free liberal democratic society such as Australia," Mr Morrison told parliament on Thursday.
"Australians shouldn't have to worry about looking over their shoulder fearful of offending an anonymous person on Twitter ... or transgressing against political or social zeitgeists.
"We have to veer away from the artificial phoney conflicts boycotts, controversies and cancelling created by anonymous and cowardly bots, bigots and bullies."
The bill introduced by the prime minister on Thursday has its roots in conservative opposition to same-sex marriage.
It has divided moderates and conservatives in the coalition and caused disquiet with groups on both the left and right of politics.
It would mean people who express their religious beliefs do not fall foul of existing anti-discrimination legislation.
But these expressions cannot be malicious or considered by a reasonable person to threaten, intimidate, harass or vilify.
"This bill ensures people can't be persecuted for moderately expressing a reasonable belief," Mr Morrison said.
"Nothing in this bill allows for any form of discrimination against a student on the basis of their sexuality or gender identity."
Religious schools would be able to preference hiring people of a particular faith as long as this is a publicly stated policy.
"A Sikh should not be discriminated against because of the turban they wear ... nor a Jewish school seeking to employ someone of their faith," Mr Morrison said.
A religious discrimination commissioner would also be appointed to the Australian Human Rights Commission.
Melbourne Catholic Archbishop Peter Comensoli had wanted the changes to go further.
"This more limited bill will still be an important recognition of the rights of people with a religious faith to express religious beliefs and engage in religious activities," he said.
Human rights groups were concerned it would make life harder for LGBTQI+ people.
"What constitutes discrimination today, will be lawful tomorrow, allowing people to say harmful, insulting and demeaning things," Equality Australia chief executive Anna Brown said.
The coalition remains under pressure including from some in its own ranks to amend the Sex Discrimination Act so teachers can't be sacked and students expelled because of their sexual orientation.
Attorney-General Michaelia Cash has written to the Australian Law Reform Commission about protections for LGBTIQ+ students.
"No student should be expelled from a school because of their sexuality," she told the Senate.
Senator Cash's assistant minister, Amanda Stoker, said Sex Discrimination Act changes remained on the table but were separate to the religious discrimination bill.
Labor indicated it was willing to work with the government on the bill.
"Freedom of thought, conscience and religion or belief is a fundamental human right," shadow attorney-general Mark Dreyfus said.
The government's bid to send the proposal to the Senate's legal and constitutional affairs committee was voted down.
Labor wanted it subject to a select committee inquiry involving both houses of parliament.
Australian Associated Press