BACKGROUND: There is limited empiric evidence on the coverage of pneumococcal conjugate vaccines (PCVs) required to generate substantial indirect protection. We investigate the association between population PCV coverage and indirect protection against invasive pneumococcal disease (IPD) and pneumonia hospitalisations among undervaccinated Australian children. METHODS AND FINDINGS: Birth and vaccination records, IPD notifications, and hospitalisations were individually linked for children aged <5 years, born between 2001 and 2012 in 2 Australian states (New South Wales and Western Australia; 1.37 million children). Using Poisson regression models, we examined the association between PCV coverage, in small geographical units, and the incidence of (1) 7-valent PCV (PCV7)-type IPD; (2) all-cause pneumonia; and (3) pneumococcal and lobar pneumonia hospitalisation in undervaccinated children. Undervaccinated children received <2 doses of PCV at <12 months of age and no doses at ≥12 months of age. Potential confounding variables were selected for adjustment a priori with the assistance of a directed acyclic graph. There were strong inverse associations between PCV coverage and the incidence of PCV7-type IPD (adjusted incidence rate ratio [aIRR] 0.967, 95% confidence interval [CI] 0.958 to 0.975, p-value < 0.001), and pneumonia hospitalisations (all-cause pneumonia: aIRR 0.991 95% CI 0.990 to 0.994, p-value < 0.001) among undervaccinated children. Subgroup analyses for children <4 months old, urban, rural, and Indigenous populations showed similar trends, although effects were smaller for rural and Indigenous populations. Approximately 50% coverage of PCV7 among children <5 years of age was estimated to prevent up to 72.5% (95% CI 51.6 to 84.4) of PCV7-type IPD among undervaccinated children, while 90% coverage was estimated to prevent 95.2% (95% CI 89.4 to 97.8). The main limitations of this study include the potential for differential loss to follow-up, geographical misclassification of children (based on residential address at birth only), and unmeasured confounders. CONCLUSIONS: In this study, we observed substantial indirect protection at lower levels of PCV coverage than previously described-challenging assumptions that high levels of PCV coverage (i.e., greater than 90%) are required. Understanding the association between PCV coverage and indirect protection is a priority since the control of vaccine-type pneumococcal disease is a prerequisite for reducing the number of PCV doses (from 3 to 2). Reduced dose schedules have the potential to substantially reduce program costs while maintaining vaccine impact.