Faith-based schools must be able to hire and fire teachers and staff based on their beliefs, an inquiry into religious freedoms has been told.
The ability to eject students who posed a threat to religious communities must also remain intact, Christian Schools Australia said.
In a joint submission with Adventist Schools Australia, the association warned the review - led by former minister Philip Ruddock - that the "essential nature" of schools would be undermined if they were no longer able to employ staff with shared values and beliefs.
"If freedom of religion is to remain a legitimate hallmark of Australian education then the rights of school communities to operate in accordance with religious beliefs must be upheld," the submission said.
"This must include the right to choose all staff based on their belief in, and adherence to the beliefs, tenets and doctrines of the religion concerned."
The associations argued schools must also retain the right to select students and families based on religious criteria.
"Faith communities, including Christian schools, must be able to take action that separates individuals from that community when their actions undermine the community," they said.
"While not a preferred outcome this option remains a necessary response to situations determined by a community to be a threat to that community."
The associations called for the appointment of a "freedoms commissioner" within the Australian Human Rights Commission.
They also recommended protections pushed by conservatives in last year's same-sex marriage debate, including freedom of speech on defining marriage and securing the charitable status of religious organisations.
However, campaigners behind the push to legalise same-sex marriage campaign told the inquiry that enabling legislation struck the right balance and should not be revisited.
Submissions lodged by LGBTI rights advocates and human rights organisations called for religious exemptions to discrimination law to be wound back or dumped.
"We oppose all state, territory and commonwealth provisions that allow discrimination and vilification on the grounds of sexual orientation, gender identity, intersex status and relationship status," LGBTI rights group Just.Equal said.
"This includes those provisions that allow discrimination and vilification by religious individuals and organisations including schools, hospitals, welfare agencies and aged care facilities."
Melbourne Anglican Bishop Philip Huggins, president of the National Council of Churches in Australia, said the right to freedom of religion was in reasonable shape.
However, the council said it was seeing more verbal and physical abuse of people based on their religion.
The council recommended the government examine the possible benefits of a bill of human rights, and review the way schools teach about major religions of the world.
