In the past the bilateral relationship has been heavily focused on Australia's aid program to PNG but Ms Gillard says now it is much broader encompassing trade, investment, education and defence links.
"Papua New Guinea is modernising, it's changing, you can see it all around you and that means it is a good time for me to be here talking about the future of this relationship," she said.
Ms Gillard says she'll sign a defence cooperation arrangement with her PNG counterpart Peter O'Neill.
She says she won't be visiting the processing centre for asylum seekers on Manus Island during her 3-day stay in PNG.
Ms Gillard arrived in Port Moresby on Thursday afternoon to a red carpet welcome complete with singing, dancing and gunfire.
Colourful Huli Wigmen from PNG's Highlands beat drums, jumped and chanted as Ms Gillard stepped off the plane in Port Moresby on her first visit to the country as Prime Minister.
There was also a 19-gun salute to announce her arrival and around 100 locals gathered on the hill overlooking the airport to catch a glimpse of her.
"PNG and Australia have a close relationship together. We like to see the Prime Minister of Australia and that's why we are here," said one local.
Also there to greet her were PNG deputy prime minister Leo Dion and foreign minister Rimbink Pato.
After her warm welcome, Ms Gillard paid a courtesy call on governor-general Sir Michael Ogio.
Tonight she is to be guest of honour at a state dinner hosted by her PNG counterpart Peter O'Neill.
On Friday, Ms Gillard's day is packed with official engagements, including a visit to a local high school and a market in the suburb of Gerehu, which even locals consider a rough neighbourhood.
A visit by Australia's first female prime minister to a country where women are largely treated as second-class citizens is also being seen as a powerful symbol.
Delilah Gore, one of the three women in PNG's 111-seat Parliament, is travelling from her electorate in Oro Province to be in Port Moresby for Julia Gillard's visit.
"I met several women at the hospital and told them I'm rushing to Port Moresby because I'm meeting with the Prime Minister," she said.
To have an Australian woman prime minister, it's really boosting us. In the future we want one Papua New Guinea woman to be a prime minister also.
Delilah Gore, PNG MP
"And they were all so excited and they said pass our regards to the Prime Minister for Australia, tell her we've been following her."
Ms Gore says Ms Gillard is an inspiration to Papua New Guinean women.
"To have an Australian woman Prime Minister, it's really boosting us," she said.
"In the future we want one Papua New Guinea woman to be a prime minister also."