In this study, we examine mainly the effect of stock liquidity and corporate governance on leverage policy in Australia. After controlling for the effects of firm-specific determinants, we find that stock liquidity and corporate governance quality (CGQ thereafter) reduce leverage significantly. Also, we document that high liquid firms in Australia dominate largely on determining the relation between CGQ and leverage, due to that CGQ is significantly strong in high liquid firms. Furthermore, our findings confirm prior research that firms with more liquid stocks are significantly less leveraged and CGQ has an inverse relation with high leverage firms.