Sixteen-year-old Jessica Watson waves as she sails past the finish line at the entrance to Sydney Harbour . (AP Photo/Rob Griffith)

Prime Minister Kevin Rudd has praised teenage sailor Jess Watson as "Australia's newest hero".

Watson stepped from her yacht near the Sydney Opera House, walked up a pink carpet and greeted thousands of cheering fans.

Mr Rudd was one of them.

"Jess, welcome back to dry land, welcome back home to Australia," he said in a speech to the crowd.

"You may feel a little wobbly on your feet just now, but in the eyes of all Australians, you now stand tall as our newest Australian hero.

"You are a hero for all young Australians, you are also a hero for young Australian women."

Mr Rudd presented Watson -- who turns 17 next week -- with a free driving lesson from the federal government, kissed her on the cheek, and led the crowd in a rousing three cheers.

Watson beamed and waved at the crowd.