The University of New South Wales (UNSW) Indigenous Terminology guide states that Australia was "invaded, occupied and colonised".
But UNSW says it does not mandate what language can and cannot be used.
"It uses a more appropriate, less appropriate format," a UNSW spokesperson said in a statement to the BBC.
"The guide suggests referring to Captain [James] Cook as the first Englishman to map the continent`s East Coast is `more appropriate` than referring to his `discovery` of Australia."
Captain James Cook claimed possession of the east coast of what is now Australia on behalf of the British crown in 1770, following more than 160 years of mapping and exploration mainly by the Dutch.
There were already more than 250 tribes of Aboriginal people living on the land, each with their own language, customs and territories.
Then began a process of colonisation and land confiscation which denied Aboriginal rights to land, citizenship and equal status - rights which in many cases were only finally bestowed in recent decades.
Language `not neutral`
The authors of the terminology guide explain their approach at the start, saying that while all staff and students rely heavily upon language, it "is also a vehicle for the expression of discrimination and prejudice... [and] cannot be regarded as a neutral or unproblematic medium".
In what follows, students are instructed to use the terms "Indigenous Australian people" or "Aboriginal peoples" in place of "Aborigines" or "the Aboriginal people", to avoid implying that all Indigenous Australians are the same.
The guide also lists words such as "primitive", "simple", "native" and "prehistoric" as less appropriate than "complex and diverse societies".
Use of a term such as "nomadic" is discouraged on the grounds that it implies Indigenous Australians were not permanently settled, supporting the doctrine of terra nullius that English settlers used to justify occupying land in Australia.
The guidelines have sparked outrage in Australia`s tabloid Daily Telegraph newspaper and on talkback radio.
Conservative radio host Alan Jones said: "Don`t try and restrict the thinking of university students by some so-called diversity toolkit on Indigenous terminology rubbish which dictates game, set and match that Cook`s arrival in New South Wales must be referred to as an invasion."
"One student might well argue in favour of invasion and another in favour of settlement. The argument should be judged on its quality. But prejudice and political correctness are anathema to genuine scholarship and learning."
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