The woman, named locally as Mia Ayliffe-Chung, from Derbyshire, was described as "gorgeous" by friends.
As well as fatally injuring Mia Ayliffe-Chung, the 29-year-old French man left a 30-year-old Briton - named locally as Tom Jackson - fighting for his life.
The knife attack took place at Shelley's Backpackers accommodation in the Home Hill area of Queensland at about 11.15pm local time on Tuesday, police said.
Miss Ayliffe-Chung, from Wirksworth, Derbyshire, was only days into a three-month trip to the country. She had been working as a waitress and with animals on a farm so she could extend her working holiday visa.
Friends have been paying tribute to both Britons since hearing of the attack.
Samantha Harrison wrote on Facebook: "Tom Jackson was a very close friend and one of the most amazing people I have ever met. Now Tom I need you too stay strong and beat this for yourself and all of your friends and family who love you."
While Amy Browne, 19, from the Gold Coast, who worked as a bartender at the Bedroom Lounge Bar, where Miss Ayliffe-Chung was a waitress, told the Press Association: "Mia was honestly the most bubbliest and most caring girl I knew.
"She got along with everyone she met, she just had that gorgeous personality that everyone seemed to enjoy.
"She always had a smile on her face, so innocent and full of life and love. Our memories will be cherished forever and I know she'd want us all to stay positive in the darkest of times. Rest in peace my beautiful friend, heaven has truly gained another angel."
Queensland deputy police commissioner Steve Gollschewski said all motivations were being considered, including criminal and political, as well as the impact of drugs and mental health problems.
He said: "Initial inquiries indicate that comments which may be construed as being of an extremist nature were made by the alleged offender.
"It is alleged that the suspect used the phrase 'Allahu Akbar' during the attack and when arrested by police."
Police said up to 30 people witnessed the "senseless act of violence" in which a 46-year-old local man also suffered non life-threatening injuries.
Friends paid tribute on Facebook, with Tom Paenga writing: "R.I.P Mia. I know that I will not find someone like you again, so happy, so motivating, in good times and in bad times always you were drawing a smile...
"My condolences to your family and to those who had the pleasure of meeting you. Taken to soon but never forgotten!!!"
Kyle Godwin wrote: "We really do live in a cruel world. The only good thing to come from this is that heaven really truly has gained an amazing and beautiful soul. I love you more then anything in this world beautiful".
Source: http://www.sundayworld.com/