Nico Rosberg won the Australian GP after a strategy error from Ferrari handed the race victory to Mercedes.
Lewis Hamilton finished second after dropping as low as seventh after a slow getaway off the line.
Sebastian Vettel had stormed into the lead at the start, but the Silver Arrows' decision to put Rosberg onto medium tyres - when Ferrari opted for supersofts - during a red flag period proved an inspired decision.
"We were trying to do an aggressive strategy and it didn't work," said Ferrari team principal Maurizio Arrivabene after the race.
The stoppage was caused by a huge accident for Fernando Alonso who hit the rear of Esteban Gutierrez's Haas.
After being fired into the barrier, the McLaren car dug into the gravel, sending the Spaniard's barrel rolling. Fortunately Alonso was able to climb out of the car unaided and walked away.
To compound Ferrari's frustrations, they lost Kimi Raikkonen's car to retirement shortly after the restart with flames licking out of the SF16-H's airbox.
Vettel caught the second-placed Hamilton with a couple of laps remaining but slipped off the track as he challenged the world champion for position.
"We know we can up our game. This car should allow us to put a lot of pressure on these guys," said Vettel.
Vettel rues strategy error by Ferrari
Hamilton had spent the afternoon in damage-limitation mode after falling to sixth at the start and then struggling to overtake Williams' Felipe Massa and the two Toro Rossos of Max Verstappen and Carlos Sainz around the narrow Albert Park circuit.
"It's impossible to follow here. I've had much worse in the first race and l'd take this as a bonus after being as low as seventh," said Hamilton. "There's a still long, long way to go."
Hamilton happy with damage limitation
Daniel Ricciardo ran under the radar and took fourth for Red Bull much to the delight of the Australian fans, ahead of Massa in an unusually slow Williams.
The performance of the day perhaps came from Haas and Romain Grosjean. Starting 19th on the grid, the Frenchman avoided any of the on-track drama to take sixth place and deliver points for the American squad on their F1 debut.
"It feels like standing on the top step of the podium for us. It's been an amazing race and an amazing weekend," Grosjean told Sky Sports F1.
The points scorers were completed by Nico Hulkenberg, Valtteri Bottas and the squabbling Toro Rosso pair of Carlos Sainz and Verstappen, with the Dutch teenager voicing his frustrations with some choice language throughout the race.
Renault narrowly missed out on points on their F1 return, but Jolyon Palmer impressed on his F1 debut, particularly in defence against quicker cars.
Fellow Briton Jenson Button was a disappointing 14th as McLaren failed to deliver on their promise of a better race car.
2016 Australian GP result
1. Nico Rosberg, Mercedes, 57 laps
2. Lewis Hamilton, Mercedes, +8.060
3. Sebastian Vettel, Ferrari, +9.643
4. Daniel Ricciardo, Red Bull, +24.440
5. Felipe Massa, Williams, +58.979
6. Romain Grosjean, Haas, +1:12.081
7. Nico Hulkenberg, Force India, +1.14.199
8. Valtteri Bottas, Williams, +1:15.153
9. Carlos Sainz, Toro Rosso, +1:15.680
10. Max Verstappen, Toro Rosso, 1:16.833
11. Jolyon Palmer, Renault, +1:23.399
12. Kevin Magnussen, Renault, +1:25.606
13. Sergio Perez, Force India, +1:31.699
14. Jenson Button, McLaren, +1 lap
15. Felipe Nasr, Sauber, +1 lap
16. Pascal Wehlrein, Manor, +1 lap
Marcus Ericsson, Sauber, Not Classified
Kimi Raikkonen, Ferrari, Not Classified
Rio Haryanto, Manor, Not Classified
Estenban Gutierrez, Haas, Not Classified
Fernando Alonso, McLaren, Not Classified
Daniil Kvyat, Red Bull, Not Classified
Don't miss the F1 Report for all the reaction and analysis from the Australian GP. Natalie Pinkham is joined by David Brabham and former McLaren mechanic Marc Priestley on Wednesday at 8:30pm on Sky Sports F1.