More than 1,000 workers faced losing their jobs after the Whyalla steelworks in South Australia was swamped by mounting debts.
Albanese on Thursday pledged a major overhaul to save the site, which was run by British billionaire Sanjeev Gupta's GFG Alliance.
More than Aus$2 billion (US$1.27 billion) has been set aside to pay off debts and upgrade infrastructure, with a view to using it keep operating but with less polluting methods.
"Investment in green iron and steel will secure future demand for Australia's iron ore as the world moves toward lower emissions iron and steel," Albanese said.
"Green metals are pivotal for global decarbonisation, with iron and steel production responsible for eight percent of global emissions."
Whyalla would receive up to Aus$500 million (US$317 million) from a newly created sovereign Green Iron Fund, Albanese said.
Metals such as steel and aluminium are typically produced in hulking factories that rely on polluting coal-fired power.
The new push seeks to instead power these factories with renewable electricity, lowering emissions in the process.
Whyalla is one of only two Australian steelworks and produces 75 percent of Australian structural steel, government figures show.
Australian Workers' Union secretary Paul Farrow said the country's economic sovereignty hinged on the Whyalla Steelworks remaining open.
"Whyalla supplies three-quarters of Australia's domestic steel supply. "Without it we would be beholden to foreign nations for the building blocks of our society."
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