An air traffic control problem at Sydney Airport has been fixed, but travellers have been warned to prepare for delays as airlines deal with a backlog.
Officials say a software problem meant only one air traffic control console was operational for the morning peak at Sydney Airport, when six to eight consoles normally operate.
It is also believed the data connection between Sydney and Melbourne was down.
Thousands of airline passengers are facing delays, including families heading off for the school holidays.
Dozens of flights were cancelled, with many people experiencing delays of more than two hours.
One pilot described the Harbour City's skies as being "like a ghost town" to air traffic control as he came in to land.
Air Services Australia (ASA) said there had been a "system software failure" at Sydney's air traffic control at 5.00am.
As a result, only a limited number of flights were able to land and depart.
ASA said the glitch had now been resolved but the airlines expected disruptions to continue as they dealt with a massive backlog.
There are long queues at check-in and transfer desks.
Passengers are facing delays of up to three hours while others are having to wait until tomorrow morning to board a flight.
Some of the major airlines expect to put on additional services to ease the disruptions.
Jan Ibbottson is on holidays from the UK and said it was frustrating her flight to the Gold Coast was cancelled.
"I'm very calm about it, but it's chaos," she said.
Ms Ibbottson said the airlines had not handled the situation well.
About 15 planes can land and depart per hour using manual air traffic control methods, but there are usually about 50 movements per hour.
ABC journalist Lexy Hamilton-Smith's 7.30am flight from Sydney to Brisbane was delayed.
She said passengers had spent more than an hour on board QF506 while the plane waited on the tarmac, but only passengers with no check-in baggage were allowed to get off.
Kay Wallace from Bunbury in Western Australia is in Sydney attempting to get to Hobart for the 50th anniversary of the Hash House Harriers social running club.
Her flight from Perth to Melbourne overnight was cancelled and she was put on a flight to Sydney.
"The backlog here has to be cleared before we can even look like going to Hobart," Ms Wallace said.
The ABC understands the fault relates to the flight planning system.
This feeds into the radar picture and without it, controllers cannot see which plane is which.
The Qantas departure board lists flights to Melbourne, Brisbane and Adelaide "delayed due ATC Radar Failure".
Passengers have been urged to contact their airlines.