My children and I will soon be Australian dual nationals. My wife insists that some of her friends in a similar situation have never bothered applying for Australian passports for their kids: instead, they apparently use their foreign passports to exit and re-enter Australia. (Their parents do have Australian passports.)
Citizenship Australia says this should be impossible, but proceeds to contradict itself by saying it's actually possible but difficult:
As an Australian citizen you must always leave and enter Australia on an Australian passport. ... People trying to enter Australia as an Australian citizen but without an Australian passport face difficulties and delays.
The Passport Office, though, only says that you "should" use an Australian passport:
You may be able to travel on a valid foreign passport if you are a dual national, but you should enter and leave Australia on your Australian passport.
And Smartraveller makes the obvious point that without an Australian visa or passport, airlines are unlikely to let them board:
An Australian citizen who arrives without an Australian passport may be delayed until their identity and claims to enter Australia have been checked. If a foreign passport holder claims to be an Australian citizen, immigration officers must confirm and verify this through official databases, which will cause delays. ...
In the absence of an Australian passport, airlines are unable to verify a claim of Australian citizenship at the time of check-in and may refuse boarding. The airline may have to make inquiries with the Department of Immigration and Border Protection in Australia seeking approval to carry the passenger, which takes time and may cause delays.
So what's the deal?
(And yes, we'll be getting passports for the kids. To me it sounds like a pretty minimal cost to avoid potentially serious hassle. But I'm still curious.)