Australian National University scientists say they have used "groundbreaking" technology, which uses plastic-eating enzymes, to break plastic down to its core building blocks.
These can then be used to create more plastic products.
Samsara Recycling has partnered with the ANU. Professor Colin Jackson and PhD candidates Vanessa Vongsouthi and Matthew Spence are working for the startup.
Supermarket giant Woolworths has committed to turning the first 5000 tonnes of recycled Samsara plastic into packaging for its products.
Samsara is initially focusing on PET plastic and polyester, which is commonly used to create plastic bottles.
It accounts for about a fifth of plastic created annually.
"Only nine per cent of plastic sent for recycling is actually recycled," Samsara said.
"The rest is sent to landfill because current methods are inefficient, time-intensive and costly. Adding to the issue is that current methods do not allow all plastic to be recycled (like coloured bottles) or recycled repeatedly without degradation."
The startup wants to expand the technology to all plastics, making the material "infinitely recyclable".
"This means we will never have to create plastic from virgin materials like fossil fuels again, and we can divert plastic from our oceans and landfill," said CEO Paul Riley.
ANU Vice-Chancellor Professor Brian Schmidt has backed the company.
"Samsara has the potential to address a massive world challenge, and if we don't address it soon it will be too late," he said.
