It was the third federal election in Australia following the adoption of the federal government. The election was largely important as it would demonstrate which of the parties (if any) could hold together a stable government after the unstable second term of the previous one, which saw four different governments in power. It would also see if both of the Anti-Socialist parties could survive the implementation of protectionist policies which differentiated the two. This was also the first election where all seats for the House of Representatives were voted for via a First-past-the-post system (at previous elections some states voted as one electorate, using a bloc vote), and the first time that Tasmania was divided into separate electorates. The election result was the continuation of a Protectionist government led by Deakin and supported by Labour, which remained in power largely due to the unwillingness of the Anti-Socialist Party to support a vote of no confidence against it.
There were three main political parties contending for seats, each of which were present at the previous two elections. The Free Trade Party had changed its name under George Reid to the Anti-Socialist Party, in an attempt to differentiate it further from its left-wing rival, the Labor Party and to make its stance clearer to conservative voters. The third party standing for election was the Protectionist Party. However, since its primary platform of government tariffs had been dealt with by previous governments, the Party had become somewhat redundant. Those who remained were largely supporting the Party's leader, Alfred Deakin, rather than its policies. Of the three, the Labour Party, led by Chris Watson, now had the most realistic chance of becoming the dominant party after their gains in the 1903 election and after their leading status in the four minor states they were looking to make the same type of gains in Victoria and New South Wales.
The first federal referendum in Australia's history was held in conjunction with the election. The proposed alteration to the Constitution, to change the start date of Senators' terms from 1 January to 1 July, passed in all states and was carried.