Gillard and Clinton made the announcement in Melbourne on Sunday, with the Australian government set to commit up to 50 million U.S. dollars towards the program.
"One of the greatest barriers to a broader commercial take up of solar power is its cost and that is specifically what this joint research initiative will address," Gillard told reporters in Melbourne.
"The joint project with the United States is part of an aggressive effort to bring the sales price of solar technology down by two to four times."
The price of solar energy had dropped by 50 percent in the past three years, but Clinton said there was more work to be done, with the program aimed to make solar power competitive with conventional energy sources by 2015.
Under this initiative the two governments will share both the costs and the benefits of research and development which will speed up innovation, Clinton told reporters in Melbourne.
U.S. state department will provide a 500,000 U.S. dollars grant to the Global Carbon Capture and Storage Institute, which is co- funded by the Australian government.
The grant to the two institutes would fund a global survey to identify methods for reusing carbon. Clinton also announced up to 15 additional Fulbright Scholarships would be awarded over the next three years for studies into climate change and energy.
Clinton, joined by U.S. Defense Secretary Robert Gates will attend the Australia-United State Ministerial (AUSMIN) meeting on Monday in Melbourne. The talks to be hosted by Australian Foreign Minister Kevin Rudd and Defense Minister Stephen Smith, and will focus on regional and global security issues, including the war in Afghanistan.