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The 'Australian Red Ensign' resulted from the Commonwealth Government Federal Design Competition, which required an official flag and a merchant or shipping version of the same design. As a result, the official flag was blue and the merchant flag was the traditional Red Ensign, featuring the distinctive Southern Cross and Commonwealth Star.
In 1903, the design of the Southern Cross representation was altered from 5 stars with nine, eight, seven, six and five points respectively, to four stars with seven points and one with five points. The original variety of points was an indication of the relative brightness of each star as it appeared in the night sky.
In 1908, the current Commonwealth star of seven points replaced the earlier six-pointed star. The Shipping Registration Act of 1981 reaffirmed that the Australian Red Ensign was the proper "colours" for Australian registered ships and that private pleasure craft could fly either the Red Ensign or the Australian National Flag.

From 1901 to 1954 this flag was used as a civil flag, to be flown by private citizens on land, while the government used the Blue Ensign reflecting British practice. In 1941, Prime Minister Robert Menzies stated that there should be no restrictions on private citizens using the Blue Ensign on land and, in 1947, Prime Minister Ben Chifley reaffirmed this position but it wasn't until the passage of the Flags Act 1953 that the restriction on civilians flying the Blue Ensign was officially lifted after which use of the Red Ensign on land became a rarity.

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★ Australia's forgotten flag: The Red Ensign