The new store will be at Westfield Sydney on Pitt Street Mall and will cover 581 square metres of sales floor space over two floors, the Sydney Morning Herald reported.
Last year, the company announced it would open its first flagship store on New York's Fifth Avenue, having previously opened 110 smaller retail stores in shopping malls in the US, Canada and Puerto Rico.
Opening dates for both stores are not yet finalised, but are expected to be ready by Christmas. According to sources, the store will give Microsoft a high profile showcase for its resurgent mobile devices, such as the Surface tablets and Lumia smartphones which have begun to make headway in the mountainous task of breaking up the Apple and Google Android duopoly.
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It will also give it a central location to promote, sell and provide support for Windows PCs, Xbox One and Office applications ahead of the launch of the new Windows 10 operating system later this year.