Continued growth and consolidation of the livestock industry such as dairy industry has generated large-quantities and high-strength manure, which has long been identified as a major contributor to diffuse source pollution in Australia. However, conventional dairy shed wastewater treatment practices in Australia such as two pond systems still do not provide sufficient treatment. In addition, relevant laws and regulations in terms of nutrient management plans and manure solids disposal require new waste management approaches. Anaerobic digestion (AD) is an efficient, small footprint, cost effective and sustainable technology that should be applied in Australian dairy farms, and has the potential not only to minimise the environmental impacts but also to maximise resource recovery especially generation of useful renewable bio-fuel (methane) including wastewater reuse. In order to be able to design and operate efficiently anaerobic digestion systems, appropriate mathematical models need to be developed to observe and analyse the anaerobic process dynamics and accordingly optimize anaerobic digestion applications before investment of construction and installation. The present paper critically reviews AD technology in the context of dairy shed wastes and AD modelling. The necessity of AD application on Australian dairy farming is discussed, based on conventional dairy waste management practices and relevant laws and regulations. Also the advantages of AD technology are illustrated by comparing traditional and integrated dairy waste management practices. The unique characteristics of Australian dairy shed wastes, the knowledge gap and future trends of AD technology have been identified. As a result, it is known that AD technology should be extended to Australian dairy farming.