Sydney airport urged travellers to be patient.
Air Services Australia (ASA) said there had been a "system software failure" at Sydney's air traffic control at 5 a.m.
Virgin Australia said it had been in contact with Airservices' management team throughout the day and would be part of the review into the outage. "Please check with your airline for flight status", the airport's official account said.
"The problem is not fully resolved as yet, however our technicians are now working to rectify the situation", a spokesperson said.
Grounded passengers took to social media during the incident to express their frustration with the lack of information provided about flights.
"We are working to have all guests on their way as quickly and safely as possible once the issue is rectified".
Qantas Airways Ltd, the country's biggest carrier, said in a statement posted on its Website that there were "significant delays at Sydney Airport affecting all airlines" without giving more detail.
Brisbane Airport passengers have also reported delays, although it has not been confirmed if they are directly related to Sydney.