The young German, bidding for a fourth consecutive world drivers’ title, clocked a quickest lap of 1min 27.211sec around Melbourne’s Albert Park street circuit to claim the early edge over Ferrari’s Felipe Massa and Fernando Alonso.
Vettel was 0.078sec faster than Massa (1:27.289), with last season’s world championship runner-up Alonso (1:27.547) third.
It is the first indication of how the cars are faring after inconclusive pre-season testing in Spain. A second practice session is scheduled for later Friday.
Vettel posted his best lap with about 25 minutes left in the 90-minute practice session.
Britain’s Lewis Hamilton, driving this season for Mercedes, was fourth fastest, 0.341secs down on Vettel, with Red Bull teammate, Australia’s Mark Webber, fifth quickest.
Last year’s Melbourne winner Jenson Button struggled in ninth in his McLaren.
As the Pirelli tyres degraded several cars came off the circuit with Massa sliding at Turn 6 and recovering through the gravel.
Britain’s Paul Di Resta, driving for Force India, lost control of his car late in the session approaching the same turn.
Di Resta recovered from a stationary position deep into the gravel trap and returned to the track on his way to the pits.
Venezuelan Pastor Maldonado in a Williams ran wide at Turn 5, creating a mini dust cloud but was able to continue.