Seventy-one-year-old Sir Peter was honoured at a ceremony in Sydney with what is the AOC's highest accolade.

It recognises "remarkable merit in sporting achievement and contribution to sport" with Sir Peter said to have made an "outstanding" contribution through his support of the Australian Olympic team.

His work has included hosting the Rio 2016 squad at Admiralty House on their return home from Brazil.

Australian Olympic champions including swimmers Ian Thorpe and Dawn Fraser were among those to attend the ceremony in Sydney.

"We are very much indebted to Sir Peter, who has shown tremendous interest in our athletes and in the Olympic Movement," AOC President John Coates said.

"Sir Peter is the first governor-general to receive the Order of Merit and it highlights his long-time support for all Olympic athletes."

The governor-general is the representative of Australia's monarch, currently Queen Elizabeth II.

Sir Peter will be retiring in June after taking the role in 2014.

"The most important thing in the Olympic Games is not to win but to take part, just as the most important thing in life is not the triumph but the struggle," he said. 

"The essential thing is not to have conquered but to have fought well. 

"What a recipe for life.

"Every child out at little athletics, or at other junior sports, wants to be an Olympian.

"In a nation that loves its sport, we rely on you, Olympians, for that synergy and emotional bond you have with the sport to show that Australian people have what it takes. 

"I am so honoured to have received this award tonight. 

"[Lady Cosgrove and I] will retire and move onto other things.

"But rest assured, if you're competing in an Olympic venture, we will be there supporting you and cheering you on, thinking isn't this one of the best enterprises in all of Australia."

Thorpe, a five-time Olympic champion, brought footballer Hakeem al-Araibi to the event as his guest.

Al-Araibi attracted international attention when he was detained in Thailand due to an extradition request from his birth country of Bahrain.

He fled Bahrain in 2014 and was sentenced to 10 years in prison that year for allegedly vandalising a police station during Arab Spring protests in the Gulf country, charges he strongly denies.

He was held despite his refugee status in Australia and eventually returned home after widespread outcry.