Addressing a crowd of 500 people in Sydney, which included "old friends" former prime ministers Bob Hawke and John Howard, the high-profile Republican said America needed its Aussie mate more than ever, even though there might be misgivings about President Donald Trump.
In a wide-ranging speech covering issues including regional trade and security, Senator McCain said one key area of cooperation concerned China, which he accused of acting unfairly on a number of fronts.
That included its construction of artificial islands in the South China Sea to assert its claims over the contested waterway.
China had also refused to open its economy to allow foreign businesses to compete, had stolen intellectual property, and used its trade and investment and tools to coerce its neighbours, he said.
"The challenge is that as China has grown wealthier and stronger, it seems to be acting more and more like a bully," Senator McCain said on Tuesday.
McCain says China acting like a 'bully'
The 80-year-old political veteran, who ran for the presidency against Barack Obama in 2008, said Australia and America were better off dealing with China's strategic and economic challenges together.
"I think that way we could collectively address and perhaps modify Chinese behaviour," he said.
Senator McCain suggested Australia consider joining the US and other Asia Pacific neighbours in regular patrols of the South China Sea to show China the importance of freedom of navigation.
A US Navy patrol near a group of China's man-made islands in the South China Sea last week angered Beijing, which accused America of trespassing an area over which it claims to have "indisputable sovereignty".
McCain on Australian relationship
Senator McCain said China had violated international law by building the islands and militarising them, and that if Beijing restricts freedom of navigation it would hurt economies in the region.
While Australia says it supports freedom of navigation, it has not taken part in joint patrols near China's artificial islands.
During his speech Senator McCain heaped praise on Australia, saying it "always had a special place in my heart" given the time his father, a US submarine captain, had spent here during WWII, and the "R&R" he had enjoyed in Sydney while he was in the Navy before entering politics.
He said he understood that Donald Trump had unsettled many since becoming president, and believed it was a grave mistake for the US to have pulled out of the Trans Pacific Partnership regional trade pact.
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However, America was "counting on Australia and our other allies to stick with us".
Senator McCain said the spread of terrorism was a compelling reason for closer alliances.
He said the US was close to announcing a plan to defeat terrorists in Afghanistan, which would probably entail a few thousand additional troops.
"We will be asking our friends and allies to supply additional troops as well," he said.
Australia announced on Monday plans to send an extra 30 troops to Afghanistan.
McCain talks Trump in Sydney
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