Australian Defense Minister Marise Payne said the incident occurred off the coast of Shoalwater Bay in the eastern state of Queensland.
"We will provide more detail as they become available".
"Our thoughts are with the crew and families affected" the statement said.
The accident comes just weeks after 15 Marines and a Navy sailor were killed when a Marine Corps cargo plane crashed on July 10 in Mississippi.
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An MV-22 Osprey was destroyed earlier this year during a controversial raid by USA forces in Yemen, after three crew members were injured in a "hard landing". A search and rescue operation has been launched for the same.
Search-and-rescue operations are ongoing, and authorities are investigating the crash.
The Osprey that crashed on Saturday belonged to the Marine Medium Tiltrotor Squadron 265 - nicknamed the Dragons - which is part of the 31st Marine Expeditionary Unit based in Okinawa, Japan.
It is believed 23 of the 26 on-board personnel are accounted for. The helicopter has a capacity of 32 people.
USA military forces have been operating in the area as part of a joint training exercise called Talisman Sabre. It is understood that there were no Australians involved in the crash. It also has the ability to travel much faster than a helicopter. The Osprey has been involved in a series of high-profile crashes in recent years.
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