In response to the reigning champion, Charles Leclerc gave an indication of what the Ferrari was capable of, recording a lap of one minute 23.673 seconds, before Vettel went four-hundredths of a second quicker for second place with one minute 23.637 seconds.
His Mercedes team mate Valtteri Bottas was 0.048 seconds off the time of Hamilton, who had a yawning 0.800 seconds gap to Max Verstappen in third, with Red Bull's other driver, Pierre Gasly, a further 0.042 seconds behind in fourth.
But in the second session, when teams started to stretch their legs a little, the best Ferrari could do was fifth with Vettel, almost nine-tenths of a second behind Hamilton.
While Mercedes' Toto Wolff and Ferrari's Mattia Binotto on Friday insisted qualifying would be the true gauge, few would bet against Hamilton. "This is what I love doing", he told media after second practice.
No Australian has ever stood on the podium at their home grand Prix - Ricciardo came agonisingly close in 2014 and against past year.
Ahead of the Australian Grand Prix, Hamilton said it was "not hard to read" Mercedes' testing form, and insisted the team wasn't playing mind games with its pre-season estimations.
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Ferrari looked the goods during pre-season testing in Barcelona, but mysteriously struggled in Melbourne.
"Testing is not qualifying". There's plenty of stuff that we can improve on, but this was not a bad start. It was alright. It was hard to read. But Hamilton roared back to sweep 11 of the remaining 19 Grand Prix and the 31-year-old is desperate to turn the tables.
Mercedes is aiming for a sixth straight constructors' title, equalling Ferrari's record run from 1999.
Ferrari, who appeared to have the quickest auto in pre-season testing, were fourth with Sebastian Vettel. "But it is when we are trousers down on Saturday (in qualifying) that will be the real benchmark", he said.
He spun into the grass at one stage after complaining of a reliability problem with his Ferrari.
British-born Thai debutant Alexander Albon also had a tough start, spinning his Toro Rosso at turn two and having a low-impact crash to lose his front wing and cause a brief halt in the session.
Vettel is a victor and having to settle for second in the drivers and constructors championship past year was tough to take.