The public participation mechanisms currently in place in Australia do not meet the expectations of both the construction industry and government. Relying solely on reactive participation has limitations when it comes to megaproject-induced internal displacement. However, the effectiveness of policy and guiding mechanisms in encouraging and facilitating community participation in internal displacement remains unclear. The purpose of this study is to analyse the major barriers to community participation, examine the role of the federal government, and evaluate perceptions regarding megaproject-induced internal displacement policies, strategies, and schemes. Although a cohesive national strategy for internal displacement has yet to be developed in Australia, a thematic analysis of grey documents, such as community meetings and official documents outlining key policy frameworks, plans, and strategies, is conducted to assess Australia's acknowledgement of the issue of internal displacement and its plans for localising community participation in mitigating its effects. With this, an in-depth analysis of a single megaproject at Western Sydney International Airport is presented in this study. The results revealed that local governments ailed to recognise the needs of affected communities and policy intervention was not comprehensive. Furthermore, the lack of recognition of the threat of displacement risk at the local government level contributes to barriers to local community participation. This research work offers a case study-based reference for promoting the affected community participation and collaborative governance.