Williams, a resident of the Virgin Islands, is wanted by the Internal Revenue Service on charges of willfully attempting to evade $1.5 million in taxes from 1990 to 2001.
A Sydney magistrate is now free to consider the U.S. extradition request. A hearing date has not been set.
Australian police, responding to a request from U.S. authorities, arrested Williams in May 2006 after he flew into Sydney to begin a monthlong speaking tour in Australia and New Zealand. He has been free in Sydney on $857,000 bail.
His 26-year-old daughter, Michelle, received an Oscar nomination for her performance in 2005's "Brokeback Mountain," playing the wife of Heath Ledger's character.
Ledger, 28, and Williams are the parents of a daughter, Matilda, who was born in October 2005.
Michelle Williams' father, a prominent stock market trader, lost a court appeal Friday against a second U.S. attempt to extradite him on tax evasion charges.