Qantas and Virgin have cancelled all flights into and out of Sydney and Melbourne. Adelaide airport has been shut and Canberra flights also hit.
Last week, tens of thousands of people were stranded as airlines grounded flights, and now the ash has returned.
The plume is said to be too low this time for airlines to fly under it.
The ash cloud from Chile's Puyehue-Cordon Caulle volcano is circling the Earth for a second time.
Last week, some airlines, such as Virgin Australia, flew below and around the ash cloud, but this time they have been advised against doing so.
The ash cloud is reported to be hovering at between 20,000 and 40,000ft (6-13km).
More than 120,000 air passengers are expected to face travel disruption.
Qantas said its policy was not to fly below the ash cloud, because it brought risks that it was simply not prepared to take.
"We estimate that we will be cancelling in excess of 200 flights on Wednesday," Qantas spokeswoman Olivia Wirth told reporters."The experts say we simply won't be able to operate in this situation."
Knock-on effectsAustralia's Bureau of Meteorology estimates Adelaide will be affected for 24 hours, Canberra and Sydney for around 36 to 48 hours, and Melbourne for 36 to 48 hours from Wednesday.
International flights inbound to Sydney have been diverted to Brisbane, ABC News reported.
Virgin's domestic cancellations alone will affect 170 flights.
Qantas' budget airline Jetstar also cancelled Adelaide and Sydney flights, while Tiger Airways is reported to have grounded its entire fleet.
Civil Aviation Safety Authority spokesman Peter Gibson said hundreds of thousands of passengers would be affected across the country.
"When you take out major centres like Sydney and Melbourne, the knock-on effects of that are huge, and that's unfortunate, but safety has to come first.
"When it's safe to go flying, the airlines will go back, but not until then," he said.
George Cassavetis is stranded in Sydney, trying to get back to Brisbane. He has had three flights cancelled so far and said he was running out of money.
He told the BBC: "I can't get through to the Qantas call centre as it looks like it's overloaded and I'm getting worried that I won't be able to get on another flight, as there is going to be a big backlog of passengers," he said.
Simon Abley told the BBC that it was the second time the ash cloud had interrupted his travel plans.
"Today, I had to drive back to Sydney from Wagga Wagga in a rental car - a journey which took five hours - after my flight was cancelled," he said.
"I was charged A$750 (?490) for the rental car, which seems very expensive, and suggests someone is trying to make a killing, which is unbelievable."
Last week, 100,000 passengers and 700 flights were affected by the ash plume over Australia and New Zealand.
The Chile eruption, which began on 4 June, has caused levels of flight disruption not seen since an Icelandic volcano paralysed Europe in 2010.
In Chile, authorities have allowed several thousand people evacuated from communities close to the Puyehue volcano to return.
Officials said volcanic activity had decreased, although the volcano is likely to emit ash for some time.
In neighbouring Argentina, people in the ski resort of Bariloche, which was coated in ash, have begun a big clean-up.
Responding to a Facebook appeal, residents took to the streets on Monday armed with brooms and shovels.
The hope is that ash stops flowing before the end of June when the peak winter tourist season begins.
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