The centre in Sydney has been in operation since 1964 and supports more than 1000 designers and crafters each year, with touring exhibitions and a local schedule of 18 exhibitions annually.
Its board says the centre can no longer keep its doors open without more government funding to cover operational costs.
"The Australian Design Centre's committed volunteer board has considered all other options and is deeply saddened to have been forced to make this decision," board chair Elizabeth Espinosa said on Thursday.
The organisation had previously relied on $500,000 in operational state and federal funding annually, but this was reduced to $150,000 over two years from Create NSW, leaving a $350,000 yearly shortfall, the centre said.
"This decision is devastating for all those who have been involved with this much-loved organisation over its more than 60 years," said chief executive and artistic director Lisa Cahill.
Government funding had been inadequate for the past decade, she said.
"The lack of transparency around grant decisions means we do not know why the centre, despite being recommended for funding by peer assessors, now no longer receives four-year funding from state and federal arts funding agencies," she said.
"Clearly craft and design are not a priority."
Unless funding comes through, the centre's final exhibition will close in February, its Sydney shop in March, and the centre will shut down entirely by June 2026.
Artist Cinnamon Lee, the 2025 winner of Australia's richest non-acquisitive prize for craft and design, the $35,000 MAKE Award for innovation, said news of the closure was devastating.
"I guess this is sad reflection of how poorly our sector is valued in this country," she said.
"For us to lose such a crucial organisation - that truly champions the value of craft and has nurtured the careers of so many practitioners, like me, for so many years - is pretty disastrous."
The centre previously received multi-year investment through the Visual Arts and Craft Strategy 2016-24 (now the Visual Art, Craft and Design Framework) a program that does not provide ongoing or guaranteed funding, according to Creative Australia.
"We acknowledge the centre's contribution to Australia's craft and design landscape," it said in a statement.
"We encourage organisations to draw on the feedback that is provided to strengthen any future applications or proposals."
The closure will leave NSW as the only Australian state without an organisation dedicated to craft and design.
There were no further rounds of state funding available to the ADC, according to Create NSW, which said it had met with the centre to provide feedback and support.
"The Arts and Cultural Funding Program is designed to be fair, balanced and competitive - ensuring support goes to a wide range of arts and cultural organisations that deliver the greatest benefits to communities, and supporting artists and cultural workers right across the state," a Create NSW spokesperson said.
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