Australia has moderately high fertility compared to many Western‐industrialized countries. The current total fertility rate is around 1.88, but fertility levels are not uniform across the country. There is a distinct geographic pattern with the total fertility rate about 0.5 higher in remote and very remote Australia (2.33) compared to major cities (1.82). In this paper, we examine 2 explanations for this pattern: the compositional hypothesis and the contextual hypothesis. Using event‐history methods with joint modelling to investigate parity progression, we find that after taking into account differences in age, country of birth, indigenous status, relationship status, education levels, and economic activity, women living in smaller towns in regional Australia are more likely to have a first, second, and third birth. Further, there is lower propensity to have a first child in inner or middle city areas that are characterized by smaller and more expensive housing than suburban or regional areas.