Unlike the situation in other immigrant-receiving countries, the impact of co-ethnic neighbourhoods on immigrants’ life outcomes has been understudied in Australia. In addition, because of reliance on cross-sectional and sample survey data, existing Australian studies have not taken advantage of recent methodological progress that addresses selection bias. In that context, this paper estimates the impact of the size of co-ethnic neighbourhoods on labour force participation, employment, hours worked and income of immigrants using microdata from the 2006–16 Australian Census Longitudinal Dataset that spans three censuses. Drawing on this unique dataset, the paper applies a series of OLS regression models that address issues of individual and location sorting by applying individual-fixed effects, controlling for residential mobility, duration of residence and using an exogenous measure of co-ethnic neighbourhood size. We find a small significant negative effect on labour participation and wage, particularly for the non-tertiary educated and immigrants with low English proficiency. However, when we control for residential mobility, residence in co-ethnic neighbourhoods is no longer statistically significant, which highlights the importance of stringent methodological choices that control for settlement trajectories, while revealing that movement toward smaller co-ethnic neighbourhoods is associated with increased labour force participation. Our findings suggest that efforts by the Australian government to settle immigrants in regional areas with a limited migrant population should not affect the labour market outcomes of immigrants given that ethnic enclaves do not facilitate labour market integration in Australia.