Swedish captain Lotta Schelin with the decisive goal on the hour mark was enough in an even contest in Albufeira.
Captained by inspirational keeper Lydia Williams, the Australians went to the break 0-0 despite a few good chances to open the scoring.
But the Swedes’ notoriously well-drilled defence in front of Hedvig Lindahl in goals held firm.
And after the break the game’s momentum shifted with Sweden’s classy Schelin threatening. It was a warning to the Aussies.
And on the hour mark, the Swedish skipper opened the scoring with a super finish.
Schelin drove into Australia’s box twisting and turning with speed before side-footing an angled shot past Williams and into the roof of the net.
A quality finish from a quality player to give Sweden the upper hand.
The Aussies hit back with chances to Caitlin Foord and a great effort from distance off the boot of Kyah Simon.
Sub Emily Gielnik (on for Lisa De Vanna) immediately sparked the attack and also came close to an equaliser, as did Sam Kerr but she was unable to beat Lindahl with the best chance to level the game.
As the Australians tired in the final 10 minutes, Sweden held firm to record a solid opening game win.
In the other group game, Holland edged China 1-0.
Australia’s second game at Algarve Cup will be against Holland on Saturday morning (AEDT).